Is oil vs. S&P and USD converging here or is this just a bear market head fake? Oil, the USD and S&P pierced through trend resistance and support levels. The USD has been moving inversely with the S&P and it's been acting like "a fever chart" during the financial crisis. (Soros).
But the S&P is up 30% since the March 666 lows and oil has been following the equity market, even with a higher inventory reading. US Crude Oil inventories (excluding SPR) are at 374 million barrels, levels not seen since 1990 (chart below). There is also oil inventory being stored offshore utilizing the contango spread which will eventually be dumped on the market soon. Read these articles.
4/30 -Floating oil lake likely to curb future oil prices (Reuters)
4/28 -Crude oil contango may flatten in second quarter (Reuters)
4/10 -IEA Cuts 2009 Oil-Demand Forecast (WSJ)
So is the oil market pricing in favorable inventory/production/demand levels going forward? Read Price Pop? by Gregor.us. If lower demand eats up existing inventory combined with lower production wouldn't that translate into higher prices eventually? The IEA predicts world oil demand will bottom out in Q2 2009 (Chart below). Also don't forget inflationary pressures and Treasury yields breaking resistance levels. We'll see what happens from here. Check out the futures curve, you can make 19% storing oil from June 2009 - June 2010 ($53-$63) so go hoard some oil on the Detroit River.
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