Knobias Clip Report (05-29-2008)
Submitted By Knobias ClipReport
Energy Inventories Show Large Drawdown; Could Signify a Pause in the Rally
Thursday’s session saw oil at the attention forefront of most media pundits. The weekly inventory data released by the Department of Energy showed a drawdown of 8.8 million barrels. The drawdown was the largest since 2004 and had many believing $150 barrel oil was in sight following the announcement.
But the data release caused a quick shock and then saw an immense selloff similar to Wednesday’s intraday bounce off lows. The Department of Energy noted that there were delays in crude tanker off loadings and that these delays were responsible for the big inventory decline.
The claim means two things. First, the draw down number is pointless. If the number isn’t accurate and is known to be inaccurate, it probably shouldn’t have been released in the first place. Releasing inaccurate information that is known to contain inconsistencies shouldn’t be allowed. Following one of the largest driving weekends of the year, this number was of significant importance, but the real supply of energy will obviously have to wait.
Secondly, with oil sitting near all time highs, one would think that suppliers would unload any and all inventory in the quickest and fastest way possible to sell at the elevated prices. Anything short of a natural disaster shouldn’t cause a delay. But with oil at these elevated levels, the theory of speculation and manipulation is abounded. The data shows that somebody or something could be trying to do just that.
The age old fairy tale of the boy who cried wolf seems to be what is happening. The boy who cried out was eventually ignored and gobbled up by the wolf when the situation actually presented itself to legitimately cry out for help. The past few months could have set itself up for the same scenario with Thursday’s data as the culmination of the market ignoring the numbers. But it also could be compared to the boy crying out help because the wolf is eating him, his family, his car, his bank account, his iPod, his Xbox, and is about to foreclose on his house. Thursday’s drawdown was extremely similar. It’s just too unbelievable to lend any credence.
Lend any credence to oil is exactly what the market did not do. The Dow saw a triple digit gain at one point. Solar names saw steep pullbacks as their positive correlation with oil continued. Refiners and drillers fell, while bonds prices fell as many seemed to be taking profits on their commodities and rotated into other sectors, such as technology and financials.
While next week’s inventory data will most likely show a large increase in supply (this week’s unloading delay with be an over-unloading problem next week), a real gauge of energy supplies will have to wait two weeks. With supply and demand purportedly being a major catalyst for the price hikes in crude, the lack of accurate data on supply will put the price in a holding pattern unless a new catalyst emerges. With that in mind, investors would be wise to watch.
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