Petroleum Status

The EIA's Petroleum Status Report this morning continued to produce information that counters logic for current energy pricing.

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Petroleum Status

The EIA Petroleum Status Report showed inventory build three times higher than expected, and served as a splash of cold water on the face of commodity traders. We said here in our weekly article that perhaps continued inventory building at heavy pace might force inflection point against the wild driver of momentum in the oil trading pits. But hey, what we do we know. Two weeks ago we labeled our weekly article, "Set to Retest Market Lows" (we then did) and then labeled this week's article, "Buy the News" (looks like you did). Sometimes, I scare myself to tell you the truth. But, I'm not psychic, or I would be on a beach in Greece instead of a stuffy New York City apartment. Or, I would be working for Goldman Sachs (NYSE: GS), since they seem to have the psychic market cornered.

Besides softening domestic demand, the strategic oil reserve draw should be winding down by our estimation. Last year, the government announced it would fill the reserve, and we diligently calculated that by March end, the reserve should be filled and Iran should be trembling. Might this be part of the reason inventory status is so changed... In any event, oil has no right rising in price, based on U.S. demand alone.

And, if global demand is the driver, than pricing should have reached this point sometime last year. European growth is burdened now, and China must eventually see some impact despite its own robust domestic growth. While it takes time to build power plants, it only takes hours to contemplate their fuel demands. Thus, the global demand factor was known.

So, why didn't oil rise to these levels when global economies looked flawless? Perhaps the barrier of historic price record itself stood in the way, as traders moved cautiously into the darkness of new pricing territory. They tested the water, found it lukewarm, but feared it might be cold deeper within and backed away before testing again. Could there be any other tangible reason for the energy equation?

Negative correlation to the dollar's direction has been just about perfect over the last ten dollars of oil price rise. So, oil price rise may be nothing but illusion at this point. It's just that your dollar cannot purchase what it use to, and the trend continues deteriorating. Even decoupling the two would have no economic consequence on American consumption cost. We would still be paying more for it in real dollars.

Or, is oil simply overpriced due to momentum? How far can momentum push price in an efficient marketplace? Or, are well-advised and capitalized investors buying oil ahead of a coming war. These are the possibilities. Tell me what you think is the real driver, if not a combination of each factor. Because the greatest of all factors, demand as measured by the EIA figures, says oil should be moving lower, not higher.

We will publish a solution for the dollar drift issue in a coming article. This is a symptom of a problem America must cure or otherwise settle for relegation as less than global leader.

Thank you. (disclosure)