Wet Barrel Time


"Sometimes you need to focus on liquids and other times you have to focus on liquidity."

Wet barrels, dry barrels—what does it matter? Sometimes you need to focus on liquids and other times you have to focus on liquidity. Liquids things you can see or you can look to the obscure massive amounts of liquidity that continues to be pumped into the system to keep the economy afloat.

For the second week in a row, a bearish petroleum supply report is only bearish long enough to distract oil traders from the larger issues at hand—a weak dollar and the hope for global economic recovery. More talk that China may be stronger than it seems and the greenback that cannot seem to get a bid against a backdrop of a record budget deficit and weaker-than-expected economic data.

Sure weaker U.S. data may be bad for energy demand but traders think it could be worse for the dollar. The ADP employment index estimated a loss of 371,000 jobs in July and an ISM number that showed that U.S. non-manufacturing industries contracted for the 10th consecutive month in. It might be bearish for energy demand, but it also sends a signal that the Fed will not take its foot off the liquidity accelerator anytime soon.

When it comes to liquid petroleum we have plenty of that, as well. The DOE reported that commercial crude oil inventories increased by 1.7 million barrels—a whopping 18.4% above year-ago levels. Supplies in Cushing, Oklahoma rose by 1.2 million barrels to 33.3 million barrels. The DOE says gasoline inventories are in the upper half of the average range. Both finished gasoline inventories and gasoline-blending components decreased last week. Distillate fuel inventories decreased by 1.1 million barrels, and are above the upper boundary of the average range for this time of year.

As for natural gas, Dow Jones reported that the shutdown of an Enterprise Products Partners (EPD) gas-processing platform in the Gulf of Mexico due to a fire helped rally natural gas futures. Dow quoted Angus Jackson Inc as saying that there's also a conscious effort by pipeline operators to cut back production by doing unscheduled maintenance, which has also created higher prices.

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