<DrumBeat: October 31, 2007 The Oil Drum A Few Charts of the US Crude Oil Supply and Stocks Situation>

32 comments on This Week in Petroleum 10-31-07

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Moe_Gamble on October 31, 2007 - 11:13am Permalink | Subthread | Comments top

First, I'm sure it's a typo, but you say in your first line that "overall inventories increased," when actually the report says "Total commercial petroleum
inventories decreased by 1.1 million barrels last week."

On the subject of Goldman Sachs, of course Goldman was talking its book when oil was $70 and they were calling for it to run to $90. Analysts always talk their book. No dispute there. But Goldman has played a documented role in price control in 2006, and the timing of their announcement yesterday, when inventories were likely to fall today and the Fed was likely to cut interest rates, was very peculiar. If they wanted to sell, a normal move would have been to fade the action when the price went up today.

And you are also incorrect that long speculative interest has grown rapidly throughout this rise. Net speculative longs were actually lower last week than they were in August, and they were roughly half what they were July 31. (Specifically, spec net longs went from 87,998 on October 16 to 60,026 on October 23, while commercial net shorts dropped from 77,841 on October 16 to 59,701 on October 23. On July 31, speculative net longs were 127,491.)

Speculators aren't the ones buying when the price is this high. They are looking for any trigger to sell (which is why the use of Goldman to jawbone the price was so effective--for 1 day). The reason the price went up so sharply recently is because commercial traders--insiders--reduced their net shorts.

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Prof. Goose on October 31, 2007 - 11:14am Permalink | Subthread | Parent | Comments top

Thanks Moe. I edited the first sentence...I'll let Robert fix it when he gets back from carving and spreading candy.

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Robert Rapier on October 31, 2007 - 12:03pm Permalink | Subthread | Parent | Comments top

Trying to rush around, but I have made corrections. First was a typo, second was me going by memory from an OPIS report earlier in the week. I will have to see if I still have it. But I do have yesterday's, and it says:

As has been the case for the better part of 2007, money flow continues to drive this rally. According to the most recent Commitments of Traders report from the U.S. Commodity Futures Trading Commission, speculative long positions on the NYMEX outnumbered short positions by 60,026 contracts for the week of Oct. 26.

So, I have changed to reflect the long to short ratio. That's probably what they said earlier in the week as well, but I didn't have that handy and I am trying to rush today. If I have time later, I will update to reflect that OPIS report from earlier in the week, if it indicates anything different.

That's all from me.

Edit: OK, found the OPIS in question. This is truly all from me:

Friday's data from the Commodity Futures Trading Commission underscore the difference between mid-October 2007 and the same period a year ago. Data released by the CFTC on Friday show that large "non reportable" positions among long traders increased by nearly 8-million bbl for crude oil. Meanwhile, funds on the short side liquidated about 4.7-million bbl worth of contracts.

The result is a "net long" number that shows funds betting on price appreciation to the tune of a net position of 69.2-million bbl. Interestingly, this came on a day where Energy Secretary Bodman acknowledged that oil prices are no longer the province of energy companies but instead are within the trading rooms of New York, London, and other worldwide financial capitals.

The year-to-year difference in the bias is staggering. The CFTC report from October 13, 2006, showed speculative longs holding about 159-million bbl worth of crude, but speculative shorts were at nearly the exact same number. The net long position of a year ago was just 301,000 bbl. Hence, the big speculators have a net bet on higher prices that is about 230 times the net bet from one year ago.

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Moe_Gamble on October 31, 2007 - 1:16pm Permalink | Subthread | Parent | Comments top

I've replied to this point on Khebab's thread of today. You have not taken into account the sell-off in longs caused by Goldman's reweighting of the GSCI in August 2006, which caused an artificial drop in longs.

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Robert Rapier on October 31, 2007 - 1:32pm Permalink | Subthread | Parent | Comments top

And as I pointed out, August 2006 isn't between October 2006 and October 2007, which is the time frame that OPIS is talking about.

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32 comments on This Week in Petroleum 10-31-07

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