Crude Prices Could Stay Down On Continuing Low Demand

DOE stats were fairly ugly in its own right. Start with crude oil. The amount of crude in US mirrors crude situation around the world. Perhaps we had a few major selling out some of the crude in the north sea last month that created some noise that floating stocks might be cleared. However, the truth is, crude oil is still in heavy contango and does not look like recovering anytime if stock situation remains dire, especially due to real lack of demand. Perhaps stocks in Cushing, having drawn for 7 of the last 8 weeks, are providing some bulls with confidence but CLK9/M9 spread being weaker is not a representation of demand. SFOT notes that we are in the roll period of these major indices and these spreads will come under initial pressure, as always.

DOE Crude stock

In the middle of the barrel, we have little change in stocks. However, the implied demand has fallen off drastically, in line with API’s stats. We are talking about 5 year low at this point. All things point to middle distillate dynamics remaining ugly for the foreseeable future and gasoil crack spreads should be weaker, relative to perhaps gasoline or fuel oil. Diesel, however, is providing some strength within this part of the barrel. It looks like news of Russia’s reduction in diesel supply in April is taken to be bullish. What this probably mean is that some of the ever growing US diesel stocks will start to move to Europe and we could see the demand numbers recover a little.

DOE distillate demand

European Diesel vs Gasoil

Now for today, as of noon in London FTSE up over 3%, S&P fut up over 2%, EUR/USD 1.3360, risky currencies being bid up, in particular AUD. Perhaps the new overnight from down under that trade surplus ballooned has got Asia excited as well and took Singapore’s index (STI) up almost 6%. The feel good factor is back. As a colleague wisely put it, the Recession is officially over. Risk are being put on. With the start of Q2, funds are piling money into ALL asset classes. Consumers are initiating new hedging programs in the energy space as SFOT has gathered. What this means is that we shall be dictated again by fund money in flat price, while the relative values within the barrel continue to look weak overall.

Aussie trade balance

Singapore Straits times index

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