This morning’s bleak (as expected) employment report showed an uptick in the unemployment rate to a 16-year high at 7.6 percent. The stock market did not sell off, which the media took to mean the dire economic situation would force through a new stimulus plan. Crude oil, however, slid to a two-week low.
Lind Plus Senior Market Strategist Adam Klopfenstein said he believes this could mark the beginning of a divergence in price between the equity and energy markets. Crude oil was moving with stocks for the last few months, but so far today, is showing disparity. Fundamentals have supported lower crude prices, as demand has dropped amid the global recession.
On Wednesday, February 4, 2009, the Energy Information Administration reported crude oil inventories rose 7.2 million barrels in the latest week to an 18-month high of to 346.1 million barrels. Crude oil supplies at the New York Mercantile Exchange’s delivery point in Cushing, Oklahoma, jumped 800,000 barrels to a record high of 34.3 million barrels.
“Seeing crude down shows that the higher inventory levels in Cushing and offshore are starting to add the perception that crude oil will need to reduce inventory to get a move higher. Also, the fact that oil producing nations’ theoretical output cuts would be a punishing blow to their federal budgets is starting to sink in, and there is skepticism that they will not indeed cut their production to the extent stated,” said Klopfenstein.
“The fact that the supply cuts from many countries would destroy these budgets also leads me to believe that supply will continue to build in the marketplace, so we need a rise in demand from countries besides China to get the crude oil market moving higher again,” he added.
Adam can be reached at 800-266-0551 or via email at aklopfenstein@lind-waldock.com if you have any questions about the markets or would like particular trading strategies.
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