The ships didn’t come in. Where did all the oil buyers and imports go? Consumers were making less and spending a bit more and pending home sales shot up and the oil market did not know quite what to make about it. Consumer's ships obviously have not come in but it seems neither did some of the oil tankers. Oil prices were hesitant to move yesterday as the market took a breath after that explosive run. Oil supplies, which were expected to rise, fell by 1.5 million barrels according to American Petroleum Institute data. The drawdown seemed to be caused by imports which plunged by 50.9 million barrels last week. The API reported that gasoline supply rose by 2.1 million barrels which was more than expected and distillates by 1 million barrels to 157.9. Today the Department of Energy will release their data and we will see if those imports will somehow magically appear.
Of course we know that whatever the Department of Energy shows the impact may be muted by the movements of the stocks and the dollar. Which leads us to the question of the day: if the economy is getting so much better, then why is the dollar looking so darned bad? Is the market worried that a bounce in the economy will lead to more government spending? Are they worried about the prospect of inflation? Is it concern that the global recovery will leave the US in a subservient position because of our mountain of debt? The truth is that the dollar is worried about all of these things and it should be, but perhaps at this point it is worried too much. The dollar should rebound and that in turn should cap oil. Today before the oil inventory report we should get some interesting data on the health of the economy. Factory orders could give us a bounce especially if they rise after the rash of strong manufacturing data seen throughout the globe. The ISM Services number could also garner some interest.
Of course many feel that if oil demand is going to be sustained, the growth is going to have to come from China. China demand has been a major force behind this rally and the market is looking to China as the future of this oil market. How strong is China’s growth and has their recent purchases of oil just been to stick in a reserve somewhere? In Today’s Financial Times it is reported that China’s latest set of first-half GDP numbers provided by provincial-level authorities are far higher than the central government’s national figure, raising fresh questions about the accuracy of statistics in the world’s most populous nation. The FT says that China’s GDP totaled 376bn ($2,251bn) in the first half, according to data released individually by China’s 31 provinces and municipalities, 10% higher than the official first-half GDP figure of Rmb13,986bn published by the National Bureau of Statistics. The FT says that all but seven of the regions reported GDP growth rates above the bureau’s first-half figure of 7.1%. At the start of the year, Beijing set 8% as China’s growth target for the year. The FT says that with the rest of the world is looking to China as a beacon of expansion and the discrepancy is a reminder that their statistics are often unreliable and manipulated regularly by officials for personal and political purposes. In recent years, provincial figures have suggested consistently the world’s third-largest economy is bigger than Beijing’s published estimate, but the discrepancy appears to have widened this year. Even state-controlled media reports and editorials have in recent days raised questions over their accuracy. So perhaps some of China’s recent ravenous commodity buying has more to do with demand than just stockpiling supplies away.
Despite that high global inventories and a dollar that we think is ripe for a comeback, we should see a cap in the oil rally. Still we have to respect oil's strength. If the stock market soars and the dollar falls we could see oil move through the highs for the year. If not, it is possible that we will start the correction. We still feel that the next big move will be down as seasonal and demand factors at some point will start to weigh on the market.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or firstname.lastname@example.org.