Oil prices are trying to balance weak U.S. economic data vs. the toll that another winter storm is going to take on production and use. On one hand you had the International Energy Agency report that oil inventories in advanced economies tumbled in the fourth quarter by the most since 1999 because of “surprising robustness” of demand in the U.S. and other developed nation. They reported that stockpiles of crude and refined products in the Organization for Economic Cooperation and Development nations shrank by 1.5 million barrels a day in the last three months of 2013 to end the year at 2.6 billion, their lowest level since 2008, the IEA said as reported by Bloomberg News.
Nat gas is soaring again as cold weather and production issues are astounding many that seemed to forget what a real winter was like. The Energy Information Administration reported that U.S. natural gas stockpiles dropped a whopping 12.32% driving stockpiles down to just 1.69 trillion cubic feet. This means of course the unthinkable to some is possible and that is that year end storage has a shot at falling below 1 trillion cubic feet.
While the weather may be cold the metals are not. Gold may be finally breaking out to gain ground on what has been unprecedented divergence with stocks and the physical market. The gold haters that amassed at one point the largest speculative net short position in the history of mankind. That was below $1,200 what was most people believe is the nominal cost of production.
Yet Physical demand stays strong. China demand was up 41% last year and in India they have created a black market for gold by imposing buying restrictions and tariffs. On top of that the dollar is faltering. The market is realizing that the great taper may not be a one way ticket for the dollar. Surging inflation in the emerging markets may eventually show up in the devolving world, a prospect that gold after its biggest sell-off since the 1980’s, priced that out as even a remote possibility. That turmoil is leading to potential political upheavals. We saw that in Italy when the President resigned.
Base metals are also rebounding after Chinese data surprised to the upside this week and U.S. data on the downside. A topsy turvey change of fortunes that gold bears said could not happen.