WTI crude inventories paint different picture than price action

August 26, 2015 11:40 AM

Another day, another massive sell off and rally. Yesterday's markets moves re-illustrated the illiquid nature of the futures markets, specifically the equity markets and long term fixed income markets. The stimulus from the Chinese, in an effort to support the lagging economy, have offered some stability. Still, the two-way volatility remains very high as indecision and fear rule the price discovery.

Strong U.S. durable goods data this morning will continue to separate the U.S. economic condition from the rest of the global strife, possibly offering some rationale for a bounce higher as the efforts from the Peoples Bank of China start to have some positive affect in the world’s second largest economy.

The energy markets remain relatively neutral as participants attempt to gage what is priced in and what is not. WTI crude inventories from both the API and EIA featured significant declines in inventories at 5.4 MBs and 7.3 MBs, respectively. The gasoline and distillates were both very modestly bearish with slightly better than expected builds. Essentially, the supply and demand data would seem to be skewed to the bullish side with the growing decreases almost every week in inventories, particularly at these depressed levels. 

Obviously, the global economic struggles have much to do with the continuing decline in crude prices, yet the decline is nowhere near the equity decline possibly indicating that this particular event is priced in. The reality is that the ramifications of any long term continued downturn in crude prices will at some point have negative effects on the economy of the United States, eventually out weighing the organic stimulus that cheaper fuel provides an economy.

Natural gas continues to coil at these lows with ever tightening ranges in the face of other markets extreme volatility. Today’s 4 cents range sets the natural gas apart from the rest of the commodity world as ranges are significantly wider across the board.

Considering the risk associated with taking a long natural gas position against the recent lows could be expensive considering the lack of volatility to the high side. Contrarily, the low volatility has produced some very attractive option premiums that could offer great risk reward should one be so inclined to bottom feed at these prices. 


About the Author

Tory Enerson is a senior market strategist with the Zaner Group in Chicago, an Independent Introducing Broker. He has been in the futures industry for over 20 years. Beginning his career at the CBOT in 1990, Enerson worked his way up through the industry when he became a member of the CBOT in 1998 and traded for over a decade before beginning to work with clients as a market strategist.