Mark Le Dain, vice chairman of strategy with the oil and gas data firm Validere: The financial price for crude delayed well above the physical. Where many producers were getting single digits. Tons of this is often thanks to an inflow of funds into the financial. We expect this may stop when these new buyers realize the costly roll of the contracts. Related to tons of the general public instruments they’re using. With the contango within the market. When an exchange-traded fund (ETF) like us Oil Fund (USO) rolls the contracts. You’re effectively buying high and selling low. I’m not certain tons of the retail investors that have added instruments like that understand how the curve structure impairs their returns. And that I worry they’re going to be surprised.
What were some market surprises?
Blair: The weekly U.S. Department of Energy (DOE) report was mostly ignored as what was seen was already within the price structure of the market. However, a couple of surprises were seen in the report. First, domestic crude production declined 700,000 BPD in last week’s report, yet it only declined another 100,000 BPD within the report today. Crude imports declined to round the 5.7 million-BPD level. But crude exports remain high at 3.436 million BPD in an arena that has not much thirst for crude.
Distillate stocks build by 6.3 million and distillate demand declined by over 1 million bpd. This was somewhat understandable with the milder weather we saw within the U.S. last week lowering the heating demand, but we might have expected demand to stay more stable. With distillate demand within the U.S. – also as elsewhere – keeping diesel oil demand at a better level than the present 2.757 million bpd shown within the DOE report.
Despite these cuts the market is nonetheless continuing its focus. On the ever-dwindling storage picture as the over-production and lowering demand continue to move storage facilities to the max