As reported earlier on FT Alphaville, the latest US inventory data shows crude stocks are piling up again — a hint that a much anticipated price recovery may not be on the cards just yet.
Sean Corrigan, chief investment strategist at Diapason Commodities, has provided us, meanwhile, with some very good charts depicting the extent of the problem and the bearish case for oil.
Firstly there’s crude prices versus tanker rates. Tanker rates, which recently plunged to one-tenth of their mid-2008 level, appear once again to be diverging from crude prices. This is despite larger than ever demand for floating storage, which is one of the reasons the plunge in tanker rates was more haphazard than that in dry bulk rates.
Then there’s total inventories (including crude, motor gasoline and distillates), which are some 11 per cent above historical norms.
This chart, meanwhile, shows how quick the rate of gain in total US barrel stocks (crude, motor gasoline and distillates) has been — some 21 per cent (42 per cent annualised) – as Corrigan emphasises that’s 3.9 sigmas over the mean, the highest in almost three decades.
And it all comes amid continuing poor demand for products across the US, bar a small pick-up in March which was probably due to unexpectedly cold weather.
All of which leads Corrigan to conclude:
To some extent, one could argue that the rise in commodity prices is a little premature as there is, as yet, no hard evidence of a pick-up in demand, either from inventory and usage numbers themselves or from the broader macro data. The same is, of course, even more true of equities where fundamentals alone are hardly supportive of the best five weeks’ performance in four decades.
So what was behind the recent strength in crude prices? According to Corrigan most likely the same thing that was behind the equity rally – people investing in commodities and ‘real assets’ as an inflation hedge. As he explains:
This inflationary policy is already beginning to push people towards increasing their exposure to real assets — hence the rise in commodities and stocks – a phenomenon very similar to that which took place after the American devaluation of 1933, well ahead of the recovery in real output.
Meanwhile, anyone curious about just how big the middle distillate overhang in the US is, this graph depicting days forward cover from Olivier Jakob at Petromatrix presents the situation very well:
The latest decline in stocks, as reported Wednesday, possibly stemming from increased exports out of the US or placing of product into floating storage.
Related links:
Crude inventories still a problem – FT Alphaville
Oil, the great inflation hedge - FT Alphaville