Who would have thought we'd see that? I certainly didn't.
And why is this happening?
Oil prices shed more than $2 Thursday to settle at their lowest level since June 2005, after the U.S. government reported higher-than-expected inventories of gasoline, heating oil and diesel fuel amid warm winter temperatures.
An unseasonably mild winter in the Northeast and Midwest has led to a buildup in inventories and, as a result, weaker prices.
"There is no winter at all, thus we have a lot of supplies with no home and prices have nothing to do but fall," said James Cordier, president of Liberty Trading Group in Tampa, Fla.
So we have an unseasonably warm winter. In addition, we also have higher stockpiles. Oil is still higher than average and gas and distillates and gas are all increasing.
I have to wonder is there is something more to this decrease though. Much like the copper sell-off, is this also the markets telegraphing their perception of slower US growth?
3 comments:
No, I think its the unseasonable weather. We had three early weeks of winter, and more than a month now of extended Autumn, here in Northeast Ohio, and I'm sure its much the same in the Northeast coast, which is the heartland for fuel oil heating.
When its tight supplies that are holding prices up, rather than production costs, then an unexpected loosening of supplies pushes them down again.
Mind you, I don't follow the short term speculative plays closely enough to positively say this is not a consequence of people betting on a slowdown ... just that the normal spot market conditions are enough to explain what's going on.
There are storage issues. When it gets to be time to make the seasonal switch from heating oil those storing the "wrong" fuel need to get rid of it make room for the "right" fuel. This forces end of season swings as inventories are adjusted.
Just weather. Traders are reluctant to sell down heating oil (and crude) in December as winter is still ahead of you.
Come Jan, when degree days are below normal and the forecasts are for more of the same, the bulls go bearish and dump length.
Also, many are using Dec 31 as year end. People are reluctant to make big moves just when their final bonus calcs are being done. That and the usual holiday thin markets lead people to just do nothing. First of Jan you have to start making new money and you have all year before payday. Takes a lot less courage to start shorting.
The stocks are also very high and building (which is the worst of it). While I don't think the official estimates get leaked, smart players can sniff around for the inputs and make their own guesses
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