While the just announced DOE report hardly had any groundbreaking, bullish information in it, instead confirming that US production has continued to grow for a second week and the gasoline glut is getting worse by the week, oil surged as if stung following the report.
One possible catalyst for this sharp move higher has nothing to do with oil fundamentals, and everything to do with the market’s favorite contrarian indicator, namely Dennis Gartman, who one week after covering his short and going long, just announced has sold his long. And… oil surges.
From Gartman’s overnight letter:
CRUDE OIL PRICES ARE JUST A BIT WEAKER over the course of the past twenty four hours, with WTI leading the way lower as the Brent/WTI spread has widened to $1.30/barrel in September futures and to $1.12/barrel in October, up from $1.06 and $.95/barrel respectively yesterday.
Too, the contangos in both Brent and WTI have widened materially since yesterday, with the averaged front month contango now out to $5.04/barrel from $4.61/barrel yesterday. This widening is sufficient to give us reason for pause, and well it should for suddenly crude is once again bidding rather aggressively for storage.
Indeed, this aggressive “bidding” is sufficient to cause us to abandon our modest, one unit long positions in crude immediately upon receipt of this commentary. Being wrong is part of the business we are in; remaining wrong is anathema and the market is about to tell us that we are very, very wrong.
We are wrong because China is about to begin exporting a good deal more “products” abroad. Platts is reporting that Sinopec’s exports of products shall rise by more than 100% in the second half of this year compared to last year, and that CNPC will export nearly 70% more. That has our attention and well it should. Further, the market was fearful that the problems in Turkey would make Russian exports of crude through the Bosporus problematic, but Transneft has made it very clear that even if these problems were to become more severe it has been able… and will continue to be able… to “re-rout” oil exports via the export facility at Novorossiysk if necessary. Hence that fear has been removed from the market.
That may have been all the algos needed to hear.
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