What Does Exxon Know That We Don’t?
Forecasts from the IEA and Goldman Sachs this week are trying to say that crude barrels are still overpriced – but the market isn’t listening. I’ve been convinced that crude prices above $60 are counterproductive as Goldman said in their recent note – but other factors are continuing to help push prices higher.
Let’s take a closer look and see what’s going on – and what might go on in the near future.
Some short-term fundamentals continue to push traders into long positions in oil. I’ve been among the first to point out the large outflows of capital from just about every other asset class, save for energy stocks and commodities. This isn’t particularly smart analysis, but clearly money managers and institutional investors are looking for ‘value’ in a very hot market – and oil stocks and commodities look just too low to them. For these ‘value searchers’, it’s damn the fundamentals – full speed ahead, and oil catches a bid with every, even small bullish indication.
As appears to be the case with Chinese demand, which has incrementally picked up in recent months. But it’s not like Chinese imports aren’t being met for the most part – they are finding more oil now than ever before in their history. And imported oil is not being used. Several reports have Chinese oil stockpiles growing for the last 7 weeks – an obvious way for China to hoard oil that they think is going to get more expensive later.
US stockpiles have come slightly down in the last few EIA reports – a surprise for many who believed that storage would increase throughout the summer. Many are extrapolating that this drop in stockpiles is a harbinger of slower production from slashed numbers of rig counts, but this may be very premature.
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