GLOBAL ECONOMICS AND POLITICS

Leo Haviland provides clients with original, provocative, cutting-edge fundamental supply/demand and technical research on major financial marketplaces and trends. He also offers independent consulting and risk management advice.

Haviland’s expertise is macro. He focuses on the intertwining of equity, debt, currency, and commodity arenas, including the political players, regulatory approaches, social factors, and rhetoric that affect them. In a changing and dynamic global economy, Haviland’s mission remains constant – to give timely, value-added marketplace insights and foresights.

Leo Haviland has three decades of experience in the Wall Street trading environment. He has worked for Goldman Sachs, Sempra Energy Trading, and other institutions. In his research and sales career in stock, interest rate, foreign exchange, and commodity battlefields, he has dealt with numerous and diverse financial institutions and individuals. Haviland is a graduate of the University of Chicago (Phi Beta Kappa) and the Cornell Law School.

 

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US PETROLEUM- TAKING STOCK © Leo Haviland, May 8, 2012

Crude oil streams and various refined products create an array of petroleum supply/demand pictures. Although America of course is not the entire oil universe, a survey of the recent overall United States petroleum inventory scene offers insight into the general petroleum price trend. Also recall the linkage in recent years of major trends between the S+P 500 and the petroleum complex (and commodities “in general”). This analysis of petroleum inventories in context underlines the current bearish trends in petroleum and the S+P 500.

At end March, US oil industry total inventory averages 50.3 days coverage (1996-2011, crude and products combined relative to total product supplied per day for that calendar month, Energy Information Administration inventory data; Strategic Petroleum Reserve stocks not included). End March 2012 days coverage climbed to 58.9 days supply. Not only did this soar more than eight days above average. It established a new record for that calendar month for the 1996- present era. Although the United States economy has been in a recovery for almost three years, these inventories broke beyond March 2009’s 58.2 day summit, achieved in the depths of the worldwide economic crisis and the month of the S+P 500’a major low (3/6/09 at 667).

These high supplies for March 2012 are not a one month aberration. Glance at the previous three months in historical context. From 1996 through end 2011, average total inventory for December is 50.2 days, January 51.0 days, and February 50.0 days. December 2011 ascended to a new record high for that calendar month; its 56.3 days of supply decisively beat 1998’s 55.4 days. What about January 2012? Not only is its 58.9 days coverage about eight days above average. They smash January 2010’s top of 56.8 days (compare January 2009’s lofty 55.8 days). February 2012’s 57.9 days coverage likewise significantly exceeds its calendar month average. Its huge days coverage decisively climbs over the previous stockpile record of 56.9 days achieved in February 2009.

As of 4/27/12 (weekly EIA data), US petroleum industry inventory slipped to around 56.9 days of supply (average daily total product supplied for the most recent four weeks). Total oil industry stocks nevertheless remain ample from the days coverage perspective. Although not a new end April record elevation (2009 was 58.8 days), it still vaults more than five days over end April’s 51.5 days coverage average.

On balance, just-in-case fears regarding petroleum inventory probably are diminishing, and will continue to do so for a while longer. A bear trend in petroleum prices probably also will interrelate with attitudes regarding just-in-case inventory management. If prices are dropping, why worry quite so much about supplies, right? ****

Analysis of NYMEX noncommercial petroleum positions indicates they probably reached a peak recently. Liquidation by net noncommercial longs probably has helped to move oil prices lower and probably will continue to do so.

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Petroleum- Taking Stock (5-8-12)
NYMEX Crude Oil (5-8-12)

DESPERATE HOUSEWIVES (EPISODE 10) – INSIDE THE PETROLEUM JUNGLE © Leo Haviland, April 5, 2011

Not only does recent Middle East political turmoil flood the news. Actual supply interruptions, as well as conjectural ones, of course influence petroleum and other trading and hedging behavior.Increasing petroleum consumption in non-OECD (developing) nations, though it is challenging to measure, is a bullish factor. There’s probably been a shift within the petroleum industry from a rather confident “just-in-time” orientation to a more fearful “just-in case” bias regarding preferred levels of inventory holding. Moreover, keep in mind the continued bullish effects of the weak United States dollar, low policy interest rates in America and many other OECD nations, noteworthy quantitative easing (money printing), and the global economic recovery story in general and associated rallies in stock marketplaces. Moreover, to many soothsayers onWall Street and beyond, commodities (particularly petroleum) are a new asset class. This faith inspires “alternative investment” (buy and hold for the long run) in that universe, thus tightening petroleum free supply and pushing prices higher.

By around calendar 1996, US petroleum statistics suggest a move to lower inventory holdings in days coverage terms, probably at least due to widespread faith in the appropriateness of just-in-time inventory management.

So the longer that US (and OECD) holdings such as those of March 2011 remain high relative to the 1996-10 period, the more it seems that there has been a partial shift (by at least some industry members) to a just-in-case approach. Given what may happen in the oil world, why not hold a bit more around “than usual”. Players may grab an three or four days extra now relative to just-in-time needs, as versus say 10 or more days in the distant past.

Both the 2008 and 1987 eras hint that any major (final) high in the petroleum complex will be fairly near in time (within a few months, either before or after) one in United States equities.

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Inside the Petroleum Jungle (Desperate Housewives, Episode 10)