BNP Paribas’ Harry Tchilinguirian puts forward the idea (once again) that oil prices have disconnected from physical reality, adding that until unconventional monetary policy is removed from the table the market can expect crude futures to trade as an investment class rather than a consumption asset.
As he wrote in his Tuesday report out:
Using the currency of international settlements for carry trades can be expected to have greater consequences on USD denominated assets than when the Yen was used. Equally, with low nominal interest rates and rising longer term inflation expectations, either because of liquidity conditions or concerns regarding high levels of sovereign debt, the implication is weaker real interest rates ahead. This makes oil, gold or equities an attractive alternative for abundant un-leveraged cash to move into. And as for oil specifically, floating storage has kept excess supply off the market, accordingly allowing oil to trade more like an investment rather than a consumption asset.
Meanwhile, he adds, the market appears increasingly to be preparing for a potential physical correction, if the following put-option action is anything to go by:
Goldman warns of near-term downside risk in WTI – FT Alphaville