Remember The Gold old days!

Remember the good old days when things like supply and demand seemed to matter? Well yesterday, at least for awhile, it seemed like those good old days were back. Oil inventories weighed on oil prices as the complex shifted focus away from the falling dollar and rising inflation and once again shifted to ample supply and falling demand.

The Energy Information Agency, an arm of the Department of Energy, reported that the nation is swimming in gasoline stocks and we have ample crude supply. US crude oil inventories increased by a more than expected 3.23 million barrels putting crude supplies 7% above the five year average. Gasoline was even more bearish with supplies rising for the 16th week in a row increasing by 2.35 million barrels. That puts gasoline supplies 17% above the five year average and at the highest level in 14 years. And where was crude 14 years ago?


Demand for oil is weak and it is obvious that we are seeing at least some form of demand destruction but as we have seen, rising supply and lower demand does not necessarily translate into lower price.

We have gotten beaten up lately by correctly predicting rising supply and weakening demand. What we failed to realize is that rising supply and lower demand does not always translate in to lower price. Larger market forces have rewritten the laws of gravity as commodity price inflationary pressures have over ruled the basic laws of supply in demand. Even with clear signs of demand destruction in the US and some worrying signs of slowing in Japan and even Europe, oil prices have surged along with inventories.

FX Street