Questionable Oil Statistics More Accurate than Other Government Numbers

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


If it's Wednesday, it oil inventory report today. At 10:30AM New York time, the EIA (Energy Information Agency) releases it weekly statistics on the amount of crude oil, gasoline and distillates in U.S. storage. The price of oil can move sharply up or down based on this information. Unfortunately, the numbers in the inventory reports are not reliable.

An article in the March 18th edition of the Wall Street Journal entitled "DOE Documents Cite Outdated Methodology, Errors in EIA's Weekly Survey" revealed why the weekly oil data could not be trusted. The Journal stated that the process utilized by the EIA to determine inventory levels hadn't kept up with important changes over the years. It went on to mention a litany of problems with data collection at the EIA including old technology and out-of-date methodology. It specifically cited an inaccurate report in September that caused an unjustified big move up in oil prices.

Knowing that there are problems with the statistics being published by the EIA, investors should immediately wonder how accurate the other numbers are that the U.S. government publishes. There are more than enough reasons to question the GDP reports, inflation statistics and employment reports. Unlike the EIA reports, which are inaccurate because of neglect, these other reports are inaccurate because of lack of neglect. Government statisticians have gone out of their way to introduce 'improvements' over the past thirty years in the how the numbers are determined in these other reports. These 'improvements' seem to have only made the numbers more and more favorable looking. When statistical adjustments only produce better numbers, they are more accurately referred to as manipulation.

The oil report today indicated that crude oil inventories went up by 2.9 million barrels last week and gasoline inventories were up 300,000 barrels. U.S. crude oil inventories and gasoline were above the upper limit of
the average range for this time of year according to the EIA.  While these numbers don't look good, who knows whether or not they are even close to the actual ones.

Problems with the EIA notwithstanding, investors should be watching oil at this point and paying attention to the stock charts. The price of oil is determined globally, not just by what happens in the U.S. Oil is entering a seasonal strong period that will last until the summer. Light sweet crude has been in a trading range from 70 to 83 for many months now.  A breakout above that range would be bullish and could happen at any time. ETFs/ETNs that investors can use to go long on oil include OIL, DBO, USO and USL.

Disclosure: None

NEXT: Agricultural Prices Weaken on Ample Supplies

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

The Latest from Fantasy Land

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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AIG was up as much as 66% yesterday on rumors that it would show a profit for last quarter when it reports its earnings this Friday. For those of you who may not remember, AIG is the derivatives poster child for the Credit Crisis. It was nationalized by the U.S. government, which purchased 80% of its stock and grossly overpaid for it. It was of course impossible not to overpay since the actual value of the stock was well below zero. The feds have had to continue to pour money into AIG to keep it afloat and any 'profit' it shows would be the result of the U.S. government putting more money into the company than it is losing. Now that's a great business model. What investor wouldn't want to get a piece of that action?

Just consider AIG another example of how the economy is 'recovering'. The AP wire service published a piece this weekend about how U.S. real estate prices have bottomed and the market is turning up. According to AP, the crisis is OVER and happy days are here again. Interestingly in the same article, AP projected that U.S. unemployment would be increasing until well into 2010 - just the type of situation that prevents people from buying homes and banks from lending to them. Foreclosures are up too and that of course doesn't create a drag on the housing market. The increase in foreclosures is even worse in Great Britain, although house prices are supposedly going up there as well. The 'recovery' is going so great that the Bank of England announced a big increase in their quantitative easing (aka money printing) program this morning. Yeah, things are really going great when you have to fund government spending with money created out of thin air.

As pathetic as British government finances are, and they are indeed quite pathetic, the pound still has managed to rally against the U.S. dollar during the last two months. What does this say about the market's view of U.S. government finances and our much acclaimed economic 'recovery'? The recovery wasn't looking so good yesterday when the ISM service index came out. It FELL from 47.0 in June to 46.4 in July (anything under 50 is contraction). While the manufacturing index was above 48 (still in contraction), the service component of the U.S. economy is much bigger than the manufacturing component - and it's not doing well. Also not doing well are retail sales (consumer spending is approximately 70% of the economy). Most chain store sales were strongly negative. So the economy is 'recovering', but this doesn't include any of its major components.

The trade-weighted dollar declined again yesterday, making it three days in a row that it has been below it break down price of 78.33. Gold sold off slightly. Oil tanked on the weekly EIA storage report, but then managed to close higher. Mainstream media reported this took place because of dollar weakness. One financial service also had an article that said gold went down because the dollar had been strong in the morning (I missed that). I commented on their website that these two articles were contradictory and this looked like some form of manipulation of the news. That comment was censored - just like much of mainstream financial news reporting.

NEXT: Non-Farm Payrolls and Its Statistical Quirks

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Oil Update - EIA, CFTC, and USD

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Light sweet crude fell 5.8% yesterday, a crash level one day drop. The EIA weekly storage report set off the selling. Crude closed at $63.35. It was $3.60 below Brent, a lower quality oil. The CFTC has started hearings this week and traders are claiming that they are completely politically motivated. Their evidence? - the CFTC's own reports. Oil was also damaged by a rising dollar. The dollar was rallying on the 'good news' that the U.S. was printing money to buy its own bonds (no that doesn't make any sense). As has been the case since the beginning of June, when the dollar goes up, everything else went down.

The EIA reported that oil storage was up 5.1 million barrels. Distillates were up 2.1 million barrels, but gasoline stocks fell 2.3 million. The mainstream media reported that distillate stocks were at their highest level in 25 years (take that with a grain of salt). Year over year distillate demand is down 10.7% and jet fuel demand dropped 13.3%. Gasoline demand is up by 0.8% however. At his time of year gasoline is the key demand driver for the oil market.

The CFTC has started its hearings this week trying to track down the evil speculators that have been manipulating the oil market. Interestingly, on Monday the Wall Street Journal reported the CFTC "plans to issue a report next month suggesting speculators played a significant role in driving wild swings in oil prices - a reversal of an earlier CFTC position." On Tuesday, the Journal reported that the CFTC is "updating- but not necessarily reversing - a 2008 report that blamed supply and demand, rather than speculators" for last year's spike in oil prices. So let me summarize this news for you. The CFTC already investigated this subject last year and found that the oil market like every other market operates on supply and demand. Not trusting its own work and the basic laws of economics, it has decided to investigate again. To get to the truth, it is holding hearings. However, before the hearings have even begun and data gathered, a decision was already made to blame speculators in the report that will be issued. At this point, you should be smelling a giant rat the size of Washington, D.C.

I actually don't doubt for a moment that there is speculation driving the price of oil to non-market prices. It's not taking place on the trading floors in New York, London or Singapore however, but from government offices on the Potomoc and Thames. To help clarify this picture, it might be a good idea to change Ben Bernanke's title from Fed Chair to Speculator-in-Chief. At least then, the public would know what he is really up to.

NEXT: Economy is Bad, but GDP Report is OK

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Oil storage, Stocks and States

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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U.S. Stocks opened strongly this morning. How they close and on what volume will be significant. The economic news, although negative is being reported in a positive light this morning. The fiscal crisis in California, and a number of other states, is being mostly ignored. It's likely everyone is assuming they will find some way to carry on. The oil storage report this week was a repeat of last weeks.

Yesterday, the Dow once again closed below its 200-day moving average. Intraday, it fell below the 50-day, but managed to rise to close above it. So far today, it is well above it for only the second time in the last two weeks. China hit a new yearly high last night and European stocks were up nicely today, especially commodity plays linked to Chinese growth prospects. Japan, Australia and New Zealand were down, although the rest of Asia was up. Gold has traded up nicely and silver decently today. The trade-weighted dollar is weak, last trading at 79.69, still just above its break down level of 78.33.

Oil peaked today in mid-day European trading, where it reached at least 71.50. Selling came in strongly after the storage report. Crude supplies were down another 3.7 million barrels last week. In the last two months they have dropped sharply. Gasoline and distillates were both up however, gasoline by 2.3 million barrels and distillates by 2.9 million barrels. Even if oil in storage is in short supply, it won't matter for awhile because there is more than enough gasoline, diesel and heating oil around at the moment. The last quote I saw for oil was 69.35.

In economic news, the ISM Manufacturing report came in at 44.8, better than last months 42.8. Any number below 50 indicates that manufacturing activity is contracting. Nevertheless the mainstream media reported big improvements in manufacturing data. This was the 17th month in a row that the manufacturing sector of the U.S. economy has shrunk. Housing data today was contradictory. The government reported that its home purchase index was down 21.9% year over year based on mortgage applications. The less reliable real estate PR organization NAR reported that pending home sales were up however based on signed contracts. Guess which news item got the most attention from the media.

NEXT: So far, so Bad

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Fed Knows Inflation is Coming; Oil Supply Slips Again

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The Fed statement yesterday afternoon didn't fail to disappoint - unless of course you expected intelligent insight and rational thinking about the economy. The Fed said "the pace of the economic contraction is slowing". In other words the economy is still getting worse, but it is getting worse at a slower rate. It did admit that "economic activity is likely to remain weak for a time". And this is why the Fed is as confident as it always is that "inflation will remain subdued for some time". So of course, it can print all the money its wants to and unlike every other time in history when this has happened and resulted in massive inflation, this time is different. I wonder if they sit around and chuckle when they write these statements.

To be fair the Fed did not say there would be no inflation and the 'some time' they mentioned could be the next two weeks. Whatever the time period is, it won't be that long. The Fed admitted it would be purchasing up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year, plus $300 billion of Treasury securities 'by autumn'. Those treasuries will almost certainly be longer dated paper, since China and Russia are lowering their purchases of these and moving to the short-end of the curve. Foreign governments also dumped their Fannie Mae and Freddie Mac debt, which is why the Fed now has to buy this worthless paper. But don't worry, the Fed "is monitoring the size and composition of its balance sheet". So how could they not know lots of inflation is on the way?

As has been the case since the Credit Crisis began almost two years ago, the U.S. dollar rallied on the news that the government is debasing the currency. The mainstream media was out in full force with articles trying to bull the dollar up (I wonder if they get a commission for this). Early in the day, headlines screamed "Dollar Gains Ground". I checked and the trade-weighted dollar was up 0.15, a normal insignificant intraday move. Right after the Fed's press release, "Dollar Rises After Fed Statement". It was barely up at the New York market close at 4:00PM. These reliable logic defying dollar rallies around Fed announcements can only be explained by some form of government manipulation of the currency markets.

The oil storage report came out yesterday and at first I thought the EIA reprinted last weeks numbers. Oil inventories fell 3.8 million barrels, below expectations just like last week. Gasoline inventories however rose 3.9 million barrels and this was way above expectations, also just like last week. Oil supply has fallen enough in the last six weeks that the media is no longer saying there is a glut (there never was, they were just saying this). They may soon be saying this about gasoline however. Oil closed yesterday at 68.67, little changed.

NEXT: More Numbers that Just Don't Add Up

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Oil Gases Up; Bear Bites Dollar

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Week after week after week this spring the media reported a glut in U.S. oil supply. This blog and the New York Investing meetup had to debunk this view of the state of the energy markets more than once. The supply report today once again confirms that the only glut that existed was in the imagination of reporters working for the big media outlets. Storage was way below expectations across the board for oil, gasoline and distillates. This has yet to happen in natural gas, but the market is in super contango just as the oil was in January and early February of this year. Indirectly bullish for oil and natural gas going forward was Russia's announcement today that it is reducing its U.S. Treasury holdings.

Expectations for the EIA's storage report was for a drop of 500,000 barrels of oil and an increase of 750,000 barrels of gasoline and 1.5 million barrels of distillates. Instead, oil in storage fell by 4.4 million barrels, gasoline fell by 1.6 million barrels and distillates fell by 300,000 barrels. This is the third oil report in the last four weeks that indicated a large drop in storage. The oil markets barely moved on this incredibly bullish report, although light sweet crude has been trading today around 71, above the key resistance point of 70.80.

Unlike oil, which has been rallying since mid-February, natural gas has been in the doldrums and is the worst performing commodity this year. This may be changing soon. Natural gas futures are in super contango - the distance future contract are priced well above the near term contract. The July contract is currently priced around $3.80, but the December contract is priced above $6 or more than 60% higher. Oil had the same behavior just before it bottomed and then went up for four straight months. Pay attention to this.

Although it is not getting much play so far, the most important news to come out this morning is that Russia plans to reduce its U.S. Treasury holdings. Along with China, Japan, and the Gulf Oil States, Russia is one the 4 biggest foreign holders of U.S debt. Russia says that it is not selling its U.S. bonds, but will just not replace them when they mature (you should read this as: Russia refuses to buy any more worthless U.S. debt and help us fund our deficit, so we are going to have to print even more money than we were planning). While this may sound like a minor change, it could devastating for the U.S. Dollar. Once one of the major debt holders starts bailing, there could be a stampede for the exits. Did the dollar nosedive on the news? Of course not, it actually went up afterwards. We will have to see just how long central bank intervention can forestall the market's gravitational effects.

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NEXT: Disaster Stalks the Dollar

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

More Oil Disappears; Gold Investment Demand Skyrockets

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The U.S. government's weekly EIA storage report came out this morning and for a second week in a row there was a big drop in crude supplies. Gasoline in storage dropped even more. The less reliable industry report from the API, released Tuesday evening, showed an even bigger drop of oil on hand. The ever bearish (and wrong) oil industry 'experts' were quick to point out that demand wasn't rising, it's just supply that is falling, as if somehow this doesn't cause prices to rise. One area where demand is unquestionably rising is in gold purchases for investing. According to today's report from the World Gold Council, these more than tripled year over year. As was pointed out in the New York Investing meetup's 'Inflation Investing' class last night, investment demand is the key to future price rises in the precious metals.

While the mainstream media has continually (and inaccurately) trumpeted that there is a glut in oil supply in the last several months and twisted and even misreported recent EIA statistics to show that this was the case, the price of oil has been steadily going up since February 18th. Obviously the smart money and the insiders haven't believed a word of the bearish story on oil that the press has been telling the general public - nor should you. Oil in storage dropped by 2.1 million barrels last week, after a more than 4 million barrel drop the week before. At least this time analysts predicted a drop (of 1.5 million barrels), unlike last week when they predicted a big gain. Gasoline supplies dropped an eye popping 4.3 million barrels this time around. NYMEX oil closed at 60.10 yesterday and almost reached 62 early the morning, which represents a breakout to a new trading range.

A more significant report released this morning was the World Gold Council's supply and demand figures for gold in the first quarter. Investment demand more than tripled from Q1 2008. The current figure of 596 tons is up from 171 tons last year. Investment demand represented almost 60% of all demand for gold in the January to March period - and that percentage is likely to rise substantially in the next few years until it totally overwhelms all other demand categories for gold (jewelry, industrial, and medical). ETF demand by iteself exceeded jewelry demand, historically the biggest source for gold usage, for the first time. Industrial and jewelry demand both had sharp drops, so the overall demand increase for gold went up 'only' 38%. What supposedly prevented a major price rise in gold last quarter was a huge increase in gold supply from scrap (gold holders cashing in their gold). The scrap figures should be taken with a grain of salt however. Analysis of previous big rises in supply from scrap indicate that almost the entire increase came from just one country -India - and nowhere else in the world. This is suspicious to say the least since the rules of economics tend to work the same everywhere.

Gold and its companion silver have yet to start a new rally phase, but should be doing so soon. It's never possible to say exactly when. The new demand figures for the precious metal can only be described as extremely bullish. Oil's current rebound off its lows is well underway and should last minimally at least 5 to 6 more weeks (this is the most conservative estimate). In the best case, it could continue well into the summer. Seasonal factors will eventually cause selling in the fall/winter, but don't expect oil to return to the lows from last winter. It is much more likely oil will be returning to its highs from last summer. You will probably have to wait until 2010 for that though.

NEXT: Dollar Weakens; S&P British Outlook; TED Back From Dead

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Oil Inventory Report Super Bullish; Watch Silver and Gold

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Nymex oil was as high as $60.08 a barrel yesterday, another six month high. The oft quoted 'experts' are still bearish as they have been all the way up from $33 a barrel. While it has received little attention, silver has been rallying nicely and is approaching resistance around $14.40. It is likely to get sticky around that level before a breakout can take place. Gold has been trading above, but close to its 50-day moving average for the last four days and the moving average pattern is trying to become bullish. Nova gold (NG) mentioned in this blog yesterday was up 15%. It has strong resistance only 20 cents higher, so it's not likely to be at a great entry point at the moment.

Oil is a very seasonal commodity and on average the price peaks the first week of August. The peak can actually take place anywhere between June and September. If you wish to be as conservative as possible, there is at least another month left to the oil rally. There could be two or three. Points of strong resistance include $70, the high during hurricane Katrina; the $76-$78 range, which includes the 38% Fibonacci retracement of the sell off and oil's last major breakout point before it went to $147 a barrel (this combo makes this resistance area particularly formidable); and $90, which is the 50% Fibonacci retracement of the sell off. You might need a hurricane heading toward the Gulf of Mexico to get to that level on this go around.

The EIA storage report just came out and blew the bears out of the water. Oil analysts had predicted oil in U.S. storage would increase by 1.4 million barrels. Instead, oil in storage decreased by 4.7 million barrels. Gasoline supplies were supposed to be up 400,000 barrels, but dropped 4.1 million barrels. While there was an immediate market response on the upside for oil and oil companies, I suspect a bigger rally will not show up for a couple of more days (this has happened before).

It is my belief that as the stock market fades, and this should be happening within a month or so, that gold and silver will start to shine. While there are people who are predicting gold will fall to $600, there have been a number of supposed oil 'experts' that have remained bearish during the entire oil rally. You can expect the gold bears to remain vocal all the way up as well. Watch the charts if you want to know what is really going on. Moves to higher levels and breaking above resistance are bullish signs that will tell you that gold and silver want to continue to rally. For gold, 1000 is the key level and when that is broken, a significant move up should follow shortly thereafter.

NEXT: Market Pull Back or Top?

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

NYIM May 5th Meeting; Oil Report; Swine Flu Update

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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We would like to thank our guest, best selling author William Cohan for a great interview at the New York Investing meetup last night. The discussion of his recent book, "House of Cards" touched on many of the major issues currently facing Wall Street and the financial system. Cohan was mostly critical of Wall Street during his talk as he was in his book. There was also a talk at the meeting about stocks, oil, gold and silver and where the opportunities currently lie. To find out even more about this topic, we urge everyone in the New York Metro area to attend the New York Hard Assets Investment Conference next Monday and Tuesday. Registration is free and can be done by going to: http://www.hardassetsny.com/. Meanwhile, more news about swine flu is coming out, but the medical authorities are finally being somewhat more responsible about informing the public about what is really going on.

While there are many point of agreement between the New York Investing meetup and William Cohan, some divergences of opinion come out during his interview. Cohan stated quite clearly that he believed significant reform was on the way for Wall Street and that he had high hopes for Timothy Geithner's tenure as Treasury Secretary. While there is certainly a strong movement for reform among the American populace, little has been done so far and anyone who reads this blog regularly knows we are not fans of Timid Tim Geithner. We certainly agree with Cohan's criticism of Congress and the large campaign donations that it accepts from Wall Street has corrupted our system. We don't agree with Cohan's favorable views of TARP, something we vehemently opposed and consider to be one of the biggest wastes of government money ever. Cohan did provide some interesting insight into the failure of Lehman Brothers saying there was really no clear answer why the authorities let it fail other than the timing of its demise (if it had been first, he believes a bailout would have taken place) and it wasn't a favored institution of the government as is Goldman Sachs. We hope to have at least excerpts of the interview out on video shortly.

The weekly oil storage report came out from the EIA this morning and it looked pretty bullish. Oil in storage was up only 600,000 barrels, while analysts has expected a rise of 2,000,000 barrels. Gasoline was down 200,000 barrels and the high demand summer driving season is just about to begin. In the meetup last night we showed how oil was well below its 200-day moving average and predicted it needs to get to that level before the current rally will end. Oil jumped up to a new 5-month high after the inventory report with light sweet crude reaching $55.55 a barrel. There is probably at least $20 more upside to the commodity, if not more, before a 2009 high is hit.

In today's media coverage, the first actual American death of someone who tested positive for swine flu was reported. Read the articles carefully however, they do NOT say that the woman who died on the Texas/Mexican border died of swine flu. Indeed the medical authorities refuse to state that she did and said that she had other 'critical underlying medical problems'. The little Mexican boy who died in Houston also had other significant medical issues. In Mexico, the current count is 42 deaths (still nowhere near the originally reported 160). No medical history is available for most of these people, who were poor and had limited access to health care. It is quite possible all of them had other medical issues as well and swine flu was not the primary cause of their deaths. This would explain why there are no swine flu deaths outside Mexico in places where advanced health care systems and accurate record keeping exist. There is no substantial proof that the current outbreak of swine flu is deadly, nor that it is even a serious disease.

NEXT: A Rally Frothing at the Mouth

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

If It's Wednesday, It's the Oil Storage Report

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Every Wednesday at 10:30AM the EIA (Engergy Information Agency) releases it oil inventory report for the U.S. This not only includes the oil at the NYMEX storage facility at Cushing Oklahoma (actually down two weeks ago, although the drop didn't get press attention), but oil at refineries, oil just arriving by ship, etc. It also includes the oil in the Strategic Petroleum Reserve, which is not available for general use except during an emergency. Media coverage has continually reiterated that there is a 'glut of oil' and that we are 'drowning in oil' even though there is only approximately 18 days of oil in storage (this fact remains unmentioned).

While you will continually see references in the media to the drop in global demand for oil, you will see far fewer references to falling supply. In many articles you won't see this key piece of information mentioned at all. World demand is estimated to have fallen from 87 to 84 million barrels a day because of the current economic decline. However, OPEC alone has cut daily production by over 3 million barrels. The decline in usage may also be overestimated. A report out of China, currently the worlds second largest oil consumer, today indicated that year over year demand for oil in March dropped a "whopping" 0.25% (you would need a magnifying glass to notice the change).

Falling oil production isn't just the result of evil plotters and maldoers like OPEC as the American press would have you believe, but is being caused by oil being depleted from major fields. Both North Sea and Mexican oil production are falling rapidly simply because the oil is running out. Production in the Cantarell field in Mexico, the second largest in the world, is dropping by 15% a year. This is one of the major sources of oil for the U.S. As early as five years from now, the oil being pumped from Cantarell may be so little that there will only be enough for internal use in Mexico. This will make the U.S. even more dependent on oil from our "friends" in Venezuela and the politically unstable corruptocracy of Nigeria. Even worse, the recent drop in oil prices has caused a number of production projects to be cancelled and this will add to the inevitable oil squeeze that will be taking place in the next few years.

The oil report today indicated more oil in storage than the consensus estimate. Oil, the commodity, went down on the news. Some oil stocks such as PDS and HTE are doing exceptionally well today however. The seasonals for oil are bullish at until at least June, and maybe into the summer, and there is likely decent money to be made until then in the short term. While a price pull back this fall/winter is probable because of seasonal patterns, that should be considered a major long term buying opportunity.

NEXT: IMF Notices Recession; Possible Sovereign Defaults

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Fed Minutes Take Oil on Roller Coaster Ride

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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It would be easy to get whiplash watching the oil market these days. The news was grim early in the morning yesterday with blaring headlines of oil falling below $48 a barrel in anticipation of a bad news oil storage report at 10:30AM. Storage however turned out to be below expectations and oil started rallying immediately. NYMEX oil got to over $51 a barrel mid-day, rising above the key breakout point around $50.50. Then late in the afternoon the minutes from the last Fed meeting were released and even though they should be taken about as seriously as a Mel Brooks movie, oil nosedived on the Fed's gloomy outlook for the economy. In the end oil was up 23 cents, closing at 49.38, though today in mid-session European trading it's above $51 again.

The price of oil was weak early Wednesday because of a report Tuesday evening from industry group, the American Petroleum Institute, that indicated there was 6.9-million-barrel build in storage.This report is not terribly reliable because it is not comprehensive and submitting data is voluntary. The government's EIA report that came out the next morning, painted a very different picture of the oil market. Oil in storage rose 1.7 million barrels, much less than the 2.3 million barrels that analysts had predicted. Distillates, which include heating oil and diesel, fell by 3.4 million barrels versus expectations of a drop of only 600,000. Gasoline demand was reported as being 0.2% below a year ago (if demand was 100 a year ago, it is now 99.8). While the drop in U.S. gasoline demand is something you would need a magnifying glass to see, the mainstream media has continually reported it as collapsing and falling off a cliff or words to that effect.

Despite the bullish tone of the storage report, oil (and most of the rest of market) sold off big time when the meetings from the Fed's March meeting were released in the late afternoon. The Fed, which didn't see the Credit Crisis coming, miscalculated it at every twist and turn, and didn't foresee the recession, is now gloomy for the next two years going forward. Sure they were wrong over and over and over again, but now they know what's going on. The minutes also indicate the Fed is worried about deflation even though it is stated in the same minutes that they are printing new money like no tomorrow. Worrying about deflation under such circumstances is like worrying about being attacked by Big Foot while walking through Central Park. The probability is somewhat less than zero.

While gasoline demand in the U.S. is flat, it should be rising in China. For the last three months cars sales in China have exceeded car sales in the U.S. Year over year, car sales are down 37% in the U.S., but up 5% in China. China is on its way to becoming the number one auto market and the number one energy user. Oil demand is shifting from North America to East Asia while the ability to produce oil is declining 6% a year by some estimates. There are even predictions out there of an oil price spike as early as later this year. While I don't necessary believe it will happen that soon, it will indeed happen as some point.

NEXT: It's Not the News, It's How the Market Reacts to the News

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.