Thursday, April 22, 2010

Oil subsides but is still potent for upside

Oil continues to strength against massive supplies in the US.

"Oil inventories at Cushing reached 34.1 million barrels in the week ended April 16, less than one million barrels shy of a record, the U.S. Energy Information Administration said Wednesday. The extra oil has few outlets, with stockpiles across the Midwest at their highest in at least 20 years and refiners already producing enough fuel to further inflate gasoline and distillate inventories."

Supplies at the highest level in 20 years and oil is still above $80/barrell. Wow.

'"Oil prices have managed to remain above $80 a barrel largely due to strong demand out of China, which has exceeded expectations for economic growth over the last 18 months, even as U.S. oil demand has underperformed.

"The shift in the epicenter for demand continues to shift east of the Suez," wrote analysts with Barclays Capital.'

Yet this may not be the end of it. If the Chinese yuan increases, then oil could go even higher if their stimulus is maintained while the currency appreciates and thus the buying power of China increases.


Lockstep said...

This was a very good call. When China interrupted it's stimulus program, oil promptly fell to the lowest price in six months. But since China cannot discontinue it's stimulus, oil has rebounded.

Based on what we have seen of the limits of Chinese stimulus the past couple of months, I would short oil if the price gets close to $90/barrel (USO near $42)


Interesting post on big company handouts.