Quote of the Day
You never find yourself until you face the truth.
Yesterday was clearly a so called risk-on day as market participants interpreted Spain's better than expected auction results that all is ok in Europe. The markets remain so interlinked that something as simple as a modestly oversubscribed auction from a country that is struggling to get its house in order was enough to drive just about every risk asset market higher. Nothing has changed insofar as economic growth as the global economy is still slowing down and thus oil demand will also slow. In addition nothing new on the Iran/West nuclear standoff other than the tensions are easing as another meeting is scheduled for May 23rd. All signals ...fundamental and technical point to lower oil prices.
That said there is still a massive amount of spread unwinding, which is keeping WTI well bid while just about every oil commodity that has been priced against Brent is well offered. The Brent/WTI spread is continuing to unwind as are all of the WTI/refined product crack spreads. Last night's API data (see below for more details) showed a larger than expected build in WTI. If the EIA data confirms the API data it is likely that WTI will begin to catch up with the downward move in just about everything else in the oil complex.
Brent continues to give back more of the Iranian risk premium and is now just about $8/bbl above where it was trading when the EU announced the Iranian crude oil purchase embargo while WTI is carrying a premium of about $6/bbl at the moment. I expect to see the risk premium continue to recede over the coming weeks as long as the rhetoric between the West and Iran does not heat up and the meeting in May remains on schedule. In addition if the macroeconomic data continues to support a slowing of the global economy oil will have a difficult time remaining at the current elevated levels in the short to medium term.
I must comment on the move by President Obama yesterday who said that oil manipulation is causing higher oil prices and measures must be taken to stop the manipulation. This is troublesome as this is not the reason for high oil prices at all. He wants much higher margins on oil (but not other staple commodities like grains or base metals, etc), He wants more money to police the oil market and stricter position limits. The word manipulation says to me that a criminal act has occurred. I am not sure I understand that buying oil because there is the potential for a major war in the region of the world that provides more than 40% of the world's oil is a crime or an act of manipulation. Nor do I understand that buying oil because the central bankers of the world are flooding the global economy with liquidity thus raising the risk of inflation and act of manipulation.
The President has missed the entire reason why the oil market has been carrying a risk premium and what he did yesterday is yet another political act in an election year. He also did not indicate that manipulation was present in the Nat Gas market which has been sold down to the lowest level in more than a decade by the same speculative community that has bought oil. So I guess buying a commodity is manipulation and selling it short is ok. I hate to write about this nonsense but it is troublesome that it plays to the part of the population that thinks his statements are the reason for higher gasoline prices. Politics are going to make a potential mess of a very efficient commodity marketplace. Enough said.