I know that markets and investing aren’t supposed to be easy, but this is ridiculous. Oil inventories are lower than they’ve been globally at any time over the past ten years, and the US particularly has been drawing down its reserves, both commercial and the SPR, to levels not seen since the 1980’s.
For as long as I’ve been keenly observing the oil markets, when inventories went down, prices went up. But not this time.
The current situation, despite a welcome uptick in tankers leaving the Strait of Hormuz (SoH), is one where supplies remain millions of barrels per day below daily demand. For example, flights remain entirely unperturbed by current prices or any specter of possible shortages:
The above chart means that demand for jet fuel has not even slightly moderated as a consequence of the Iran War and the closure of the SoH.
And the risks to oil output extend also to Russia, the world’s #2 oil exporter, where Ukraine (with NATO assistance) has been brutally effective at striking Russian oil depots and refineries over the past three months.
So it’s not one but two extremely serious disruptions to global energy supplies and yet, somehow, magically, managed money is the most bearish it’s ever been by a very wide margin.
How do we explain that? How do current events translate into maximum bearishness?
But it goes further, the paper gamers known as “CTAs” (Commodity Trading Advisors: Firms specializing in selling commodity derivatives like futures, options, swaps, etc.) have been absolutely dumping commodities across the board over the past few months.
Copper, famously, is in a severe structural shortfall at the moment. One that won’t be remedied for at least a decade by all accounts. Did that matter in the slightest for the CTAs?
No it did not.
Coincidentally, or not, this has all been very helpful to the Federal Reserve and the Trump administration, who are keen to have inflation go down as soon as possible.
Meanwhile, the dollar is breaking out, which, paradoxically, might be a bad sign rather than a good one. It could be signaling liquidity stress in the system that is causing big money to scramble to close out loans and undo various cross-border trades.
If so, things could be quite volatile going forward, making it all the more important to safeguard your wealth by adopting a tactical risk-managed approach to portfolio management. That’s Paul Kiker’s specialty.
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by westcoastjan