Why I Hate Politics

The Mercury News details:

Rising gasoline prices, trumpeted in foot-tall numbers on street corners across the country, are causing concern among advisers to President Barack Obama that a budding sense of economic optimism could be undermined just as he heads into the general election.

White House officials are preparing for Republicans to use consumer angst about the cost of oil and gas to condemn his energy programs and buttress their argument that his economic policies are not working.

In a closed-door meeting last week, Speaker John A. Boehner instructed fellow Republicans to embrace the gas-pump anger they find among their constituents when they return to their districts for the Presidents Day recess.

The above article coincides with recent points I've heard conservative friends make regarding the connection between Obama and the price of gas (i.e. that Obama is solely to blame) and recent talking points from Santorum. One of my favorite (i.e. meaningless) points they've made is that gas was $1.67 / gallon when Bush left office 3+ years ago showing that this obviously is a result of Obama's policies.

As the chart below shows, while the $1.67 claim may be factually true it leaves out the following (important) fact...

When Bush left office the financial system was melting down and the global economy was at a standstill, one result of which was that commodity markets (and the price of oil and gas) were plunging. Thus, the $1.67 / gallon price was down from the more than $4 a gallon (i.e. the highest in history) from June of that same year.

So... rather than Democrats and Republicans working together to perhaps change energy policy or to determine the tradeoffs associated with going to war (economic or actual combat) with Iran, higher gas prices simply becomes a talking point for reelection / election.

Another reason why I hate politics.

Note that this does not in any way exempt Democrats from similar worthless talking points.

Source: EIA

Oil Stocks Up... Prices Down...

WSJ reports:

U.S. crude inventories [increased] by more than twice the expected volume in the week ended May 7, according to data released Wednesday by the Energy information Administration unit of the U.S. Department of Energy.

Crude oil stockpiles rose 1.9 million barrels to 362.5 million barrels, compared with an average survey estimate of a rise of 800,000 barrels.

Refining capacity utilization fell by 1.2 percentage points to 88.4%. Analysts had
expected a 0.2 percentage point drop.

The relevance...



Inversed (to show the relationship)...



Source: EIA

More on Oil's Impact on Consumption

Last Friday, I asked "at what point does the price of oil become debilitating?".

Fortunately for me, James Hamilton attempts to answer that question. First, he points out the concern:

Ten of the 11 recessions in the United States since World War II have been preceded by a sharp increase in the price of crude petroleum. Oil had been holding around $80/barrel over the last month, but traded as high as $87 last week, leading the Financial Times to ask whether oil could give the "kiss of death to recovery."

Before we jump to his conclusion, lets take a look at what James states the spike in oil price from 2009 lows means to the consumer.

Americans buy a little less than 12 billion gallons of gasoline in a typical month. With gas prices now about a dollar per gallon higher than they were a year ago, that leaves consumers with $12 billion less to spend each month on other things than they had in January of 2009. On the other hand, the U.S. average gas price is still more than a dollar below its peak in July of 2008.

12 billion gallons per month of gasoline is a lot, but according to the EIA, total crude use is almost double the level used in gas (about 18.5 million barrels per day x 42 barrels per gallon x 365 days / 12 months = 24 billion gallons per month). Using this "total" level and comparing it to personal income based upon market prices at each point, we can see how much of a drag the spike in oil would have impacted 'consumption ex oil'. We can also see why "this time" may not be so bad... the overall level of personal income that is allocated to oil is currently not much higher than what we saw pre-crisis (and much lower than 2008 levels).



Another way to look at this data is as a change over one and two year periods.



So while perhaps not a drag, the concern I have is that the price of oil is no longer the source of "stimulus" it was when the price of oil collapsed and Americans found themselves with much more disposable income (as much as 4% more to be specific).

In James Hamilton's post, he provides details for some indirect reasons higher oil prices caused a drag on the economy as well (reallocation of capital away from American business [i.e. small cars]) that he does not see re-emerging and concludes:

So to return to the question posed at the beginning: $87 oil is certainly not helping the recovery. But I would be very surprised if it proves to be the kiss of death.

Sources:

Personal Income: BEA
Oil Prices: EIA
Total U.S. Crude Consumption: EIA

U.K. Produce Prices Soar in March

The AP reports:

Oil prices rose above $86 a barrel Friday on a weaker dollar and after robust U.S. retail sales in March pointed to growing consumer demand in the world's biggest energy market.

By early afternoon in Europe, benchmark crude for May delivery was up 84 cents to $86.23 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 49 cents to settle at $85.39 on Thursday.

"The oil market is behaving the same way as we have seen during the past several weeks: 'one step back, two steps forward,'" said a report from Commerzbank in Frankfurt. "Supported by benign equity markets, sustained bullish sentiment and a slightly weaker U.S. dollar, the oil price recouped the losses of the previous two days."

This is definitely a sign of a recovery, but at what point does the price of oil become debilitating?

An example... this morning the United Kingdom had its highest producer price index print in two years. Per ecPulse:

PPI input for the month of Mach at 3.6% higher than the revised prior reading of 0.6% from 0.1% while on the year rallied to 10.1% from the revised previous reading of 7.5% from 6.9%.

PPI output for March rallied to 0.9% from 0.3% and on the year climbed further to 5.0% from the revised prior reading of 4.2% from 4.1%.

As can be seen, this jump is almost entirely due to the cost of energy (it has not yet fed into other goods / services) and elevated producer prices will be difficult for businesses to pass through to end consumers.

Source: Statistics.UK

On the Price Stickiness of Imported Oil

In brief... there doesn't appear to be much...

(NOTE: the axis on the right hand side is REVERSED )



Source: EIA / Census

Crude Inventories Up, Price Down

WSJ details:

Crude oil futures prices sold off sharply early Wednesday, dropping below $69 a barrel after U.S. weekly data showed rising inventories and a sharp drop in demand. Light, sweet crude oil for November delivery had been down about $1.25 a barrel ahead of the data release Wednesday, under pressure from strength in the dollar.

But crude dropped swiftly through the $70 and $69 levels after the Energy Information Administration reported a 2.8-million-barrel rise in crude oil inventories for the week ended Sept. 18. Analysts surveyed by Dow Jones Newswires had expected crude stocks to drop by 1.5 million barrels.

And the importance of stocks and the price (both figures below are YoY changes)...



Source: EIA

Oil Price vs. Reserves

Reuters details on the reason for Wednesday's jump in oil:

U.S. stocks rebounded and oil closed above $72 a barrel on Wednesday after data suggested a recovery in U.S. oil demand, a surprise for investors who earlier were fretting over a sharp slide in Chinese equities.

A U.S. government inventory report showed a huge drop in crude supplies last week, boosting oil futures by more than $3 a barrel and lifting Wall Street sentiment that had turned dour after a 4.3 percent a drop in the Shanghai Composite Index .SSEC.

But oil reversed early losses after the U.S. Energy Information Administration (EIA) said crude stocks fell by 8.4 million barrels last week, confounding analysts' expectations for a rise of 1.3 million barrels.

"I think these (demand) changes are reflective of an improving economy, but one must be cautious because these changes are versus year-ago weak numbers," said API chief economist John Felmy.

Now, a little perspective. A large decline? Yes. But reserves are still up dramatically year over year.

The relevance? The relationship between the change in these reserves (shown inversely below) and the price has been rather strong going back 4+ years. That is until the global financial markets began their rebound in March.



But where is all that demand coming from? Back to Reuters:

The decline in crude stocks was caused by rising production in refineries but also by a sharp drop in oil imports, with traders holding more inventories in tankers offshore as they await higher prices.

So is it increased end user-demand (which combined with a weak dollar makes a great story as to why oil could/should rise) OR is it just a technical reaction to traders hoarding oil? The answer to that question goes a long way in determining the future directoin of oil.

Source: EIA

Retro Post: Do Oil Futures Impact the Cash Price?

The WSJ reports:

The Commodity Futures Trading Commission plans to issue a report next month suggesting speculators played a significant role in driving wild swings in oil prices -- a reversal of an earlier CFTC position that augurs intensifying scrutiny on investors.

In a contentious report last year, the main U.S. futures-market regulator pinned oil-price swings primarily on supply and demand. But that analysis was based on "deeply flawed data," Bart Chilton, one of four CFTC commissioners, said in an interview Monday.

Need to brag a bit... Below is a "retro post" from June 19th of last year (AND the first time a post on EconomPic had actual words in it) in which I make the case that futures DO impact the cash price of oil (AND it looks like I happen to be on the right side of an argument in which Paul Krugman was on the other... that doesn't happen often). Lets go to the EconomPic time machine.

Do Oil Futures Impact the Cash Price? YES!!!

While I completely buy into the whole China / emerging markets story for a portion of the higher prices we've seen in oil, it is amazing to me how many people question whether new investors / speculators "inspectors" have made an impact. 'If it were "inspectors" where is the build up in inventory?' they asked. I believe much of this was was correctly explained by Paul's own readers. With the emergence of this little tidbit, which supports the hypothesis that not all information regarding the questionable (lack of) inventory build up is available, lets put that to rest until we get some better data points.

I thought I'd move on to discuss another reason listed as to why "inspectors" do not have an impact, which is because they:

"Invest in futures, rather than in physical supplies of oil. So every month, they must trade contracts that are about to fall due for ones that will not mature for several months. That makes them big sellers of oil for prompt delivery."

This is flat out flawed. In a nutshell, participants (buyers and sellers) of futures which CAN be delivered, can buy / sell the spot / future (or a mix of the two) because they are THE SAME THING, just with a different delivery dates. Think of a spot sale as a future at Time = 0. With more buyers emerging to invest / speculate, demand has increased which equals higher prices.

Let me provide a very basic example. For simplicity assume no financing or storage costs associated with the futures, thus the futures prices should always be equal to the spot (or else there is an arbitrage opportunity) and that only two dates of which the futures are available; 1 and 2 years out...

1) With no speculators; spot price = futures price at Time 1 and 2

2) Speculators (or index investors) new to the market buy at Time 2, driving up prices

3) The difference between 1 and 2 year prices are arb'd out by futures participants (ignoring cash market for now)

4/5) The spot market converges as those who typically buy in the futures market have an incentive to buy in the spot (i.e. producers or even hedge funds), while sellers who typically sell in the spot market, have an incentive to sell in the futures market and keep storing the underlying (either in inventories or in the ground).

Click for larger size

Thus, the actual position where futures players "invest" (Time 1 or Time 2) does not matter. What matters is the "net exposure" of their investments. Thus, rolling the position (the trading of contracts quoted above) which consists of a buy and a sell order to keep the investment in the futures market, has little or no impact on the spot price, as the "net exposure" does not change!

It is only at initiation of the new position that the demand for the underlying commodity has increased. As each day passes, more and more "investors" globally are adding commodities to their portfolios (because commodities are exploding) which increases the "net exposure", the net demand, and the price even more! Sound similar?

Update: Notice how this process would also explain the steep curve (i.e. contango)

Positioning for Oil's Slide

Regular readers of EconomPic shouldn't be surprised that I believe oil will trend lower in coming months (see here and here for a few posts on the subject). While I in no way believe that history always repeats itself, there are many parallels between sentiment now and as it existed last summer before last year's crash (concern over inflation causing investors to pour money into commodities / the belief that the worst is behind us).

Not surprising then that the path of oil in 2009 has followed the path we saw in 2008 (hat tip Hugh Hendry in his June commentary for the chart).

But it isn't only my view on oil that has been the cause of my increased short position in USO (U.S. Oil Fund ETF) via puts. The additional reason is that USO performs poorly when there is contango in the oil market. As detailed in the USO prospectus via Market Folly:

in the event of a crude oil futures market where near month contracts trade at a lower price than next month contracts, a situation described as ‘‘contango’’ in the futures market, then absent the impact of the overall movement in crude oil prices the value of the benchmark contract would tend to decline as it approaches expiration. As a result the total return of the Benchmark Oil Futures Contract would tend to track lower. When compared to total return of other price indices, such as the spot price of crude oil, the impact of backwardation and contango may lead the total return of USOF’s NAV to vary significantly. In the event of a prolonged period of contango, and absent the impact of rising or falling oil prices, this could have a significant negative impact on USOF’s NAV and total return.

And this is exactly what has happened so far this year. The market was in extreme contango (a post on contango more generally is here) which resulted in the ETF underperforming the actual spot price by 40%!



And while no longer extreme, the market does remain in contango.



In addition, this offers an explanation as to why the recent drawdown in crude isn't necessarily good news for oil bulls. Stephen Schork (via FT):

The market is paying you to build supplies by virtue of the discount on nearby material. If the recent run-up in price was based on real demand for wet barrels, then this discount would disappear, i.e. the market would be moving from contango toward backwardation. That is not the case at this time. Thus, the ongoing drawdown in U.S. crude oil supplies (outside of Cushing) is not demand driven, but rather a function of lower domestic production and fewer imports. In other words, refiners, as any good grocer would tell you, are aggressively emptying the shelves, as it were, of surplus material.

With all that said, there is still reason for concern that the price level will continue to rise. Away from additional investor flows into the asset class, large commodity players are in such control of the price, that regardless of the economic conditions that could be cause for a drop in price, the price may remain elevated. The Oil Drum sums it up eloquently:

The manipulation in the oil market is taking place at a different “meta” level to the Leesons and Hamanakas. The Goldman Sachs and J P Morgan Chase's of this world do not break rules: if rules are inconvenient to their purpose they have them changed.

The Market is the Manipulation.

Deep...

Source: EIA

Oil: Supply Up, Demand Down

And why are people bullish on oil? If your answer is the dollar, then short the dollar.

Supply

CNN Money:

Oil prices extended their decline Wednesday after a weekly government inventory report said crude supplies rose unexpectedly. Light, sweet crude for July delivery fell $1.37 to $67.18 a barrel by 10:48 a.m. ET. Oil had traded down 75 cents just prior to the report's release.

In its weekly inventory report, the Energy Information Administration said crude stocks increased by 2.9 million barrels in the week ended May 29. Analysts expected oil supply to decrease by 2 million barrels, according to a consensus estimate of industry analysts surveyed by Platts, a global energy information provider.

Demand

Bloomberg:

U.S. fuel demand fell 900,000 barrels to 17.7 million barrels a day last week, the biggest decrease since the week ended Jan. 9, the report showed. Gasoline consumption slipped 518,000 barrels to 9.02 million.

The peak U.S. gasoline demand period lasts from late May’s Memorial Day holiday until Labor Day in early September, as Americans take to the highways for vacations.

It was surprising to see gasoline demand drop, because of the Memorial Day holiday,” said Mike Zarembski, senior commodity analyst at OptionsXpress Holdings Inc. in Chicago. “It’s probably a sign that consumers are cutting back on driving because of the run-up in retail prices.”

Source: EIA

Oil Spike a Result of Dollar Weakness? Not Necessarily

In my post about the run up in the price of oil, I received the following comment:

Dollar weakness was left out of all of those explanations. Since the quantitative easing program hit high gear around March 19th, the price geometry has been constructive (minus one correction mid-rally -- few, if any rallies go straight up). Graph the dollar index or euro-dollar trade against a crude oil chart. You will see significant pressure of late due to concerns of firming inflation on the forward curve.

Since March 19th the Euro is up "only" 1.7% against the dollar (all of which took place the last two days). And while I do agree that a strong or weak dollar can and will impact the price of oil over the long run, I don't necessarily buy it as a reason in the short run. One reason, if the oil rally were due to a decline in the dollar, oil wouldn't have outperformed a "better" store of value (i.e. gold) over that same time frame.

Gold / Oil Ratio; May 2006 Index = 1

In looking at the chart above, we see the two were extremely correlated until the global economy blew up last Fall and gold outperformed by a factor of 4. Oil has shown a strong comeback since that time. And since that March 19th quantitative easing date?

• Oil is up 10%
• Gold is flat

What I do find as an intriguing theory is that in "uber-real" terms (i.e. the price of gold), oil overshot to the downside. Thus, while oil has rallied rather significantly over the past three months, it is just mean reversion from this oversold territory.

*Note the above chart is inexact as it uses the ETF's GLD and USO as representatives for gold and oil respectively (I am working from home ahead of the long holiday weekend - i.e. no Bloomberg).

Update:
Could this be another reason?

Why the Oil Spike?

The Poor Explanation (i.e. a current supply issue)

Reuters:

U.S. crude oil futures rose more than $2 per barrel on Wednesday, pushing to a 2009 front-month intraday peak above $62 a barrel as the government reported crude oil and gasoline inventories fell last week.

We've heard this with every release. Inventory build? It was less than expected. Inventory fall? Demand spiked in the short-term. Uh... no. Supply has risen dramatically over the past six months with a SLIGHT fall (can't hardly see it) last week.

The Better Explanation

WSJ:

Energy investment is "plunging" because of the recession, paving the way for oil-price surges within three years, the International Energy Agency warned in a new report.

The Paris-based watchdog for the world's major energy-consuming nations said that in recent months, oil companies and investors have canceled or postponed about $170 billion of investment equivalent to roughly two million barrels a day in future oil supply.

An additional 4.2 million barrels a day in future oil-supply capacity has been delayed by at least 18 months as companies slash spending.

And the Counter-Argument (i.e. the run up has just been speculative)

Individual Global Investor:

Supply stabilizing but demand is still falling. The cross over point in mid 2008 was reached partially because of increased supply but also because U.S. demand consumption, which had peaked in December 2007, began a decline that has yet to cease. Since that period, the world has been in a steady decline as one region after another throughout 2008 peaked in their consumption of energy. Supply has been curtailed, mostly by OPEC output cuts but demand has continued to fall faster.

As reported last week, OPEC supply is no longer falling yet the demand outlook from the International Energy Agency continues to weaken. Oil producers once before tried to hold production constant last November in the face of falling demand and rising inventories. What followed was a sharp drop in crude oil prices from the low $50/bbl range to a recent low of $32/bbl in the final week of the year.

Source: EIA

Crude Oil Inventory Rise Continues

The AP details:

Crude inventories rose more than forecast last week while gasoline inventories jumped despite expectations for a dip, according to government data released Wednesday.

For the week ended April 17 crude inventories rose by 3.9 million barrels, or 1.1 percent, to 370.6 million barrels, which is 17.2 percent above year-ago levels, the Energy Department's Energy Information Administration said in its weekly report.

That's the highest inventory level since September 1990.

Source: EIA

Crude at Levels Not Seen in 16+ Years + Tiny Distillate Drop = "Shocked" Traders

Reuters reports:

U.S. crude oil futures reversed course and rose sharply Wednesday after government inventory data showed that, despite crude inventories rising to their highest level in nearly 16 years, distillate stocks fell much more than had been forecast for last week, stunning traders.

"The big distillate draw is a big surprise and shocked everybody and that has a lot to do with crude turning to the upside here," said Mark Waggoner, president of Excel Futures in Huntington Beach, California. Domestic crude stocks rose for the fifth straight time last week, by 1.7 million barrels to 361.1 million barrels --- the highest level since the week to July 16, 1993, when stocks hit 362.2 million barrels, EIA data showed.

I'll agree crude rose (and rose to levels seen not 16 years, but closer to 19 years ago)....



But the shock about the "big" draw? While I'm no expert, in the grand scheme of things, this doesn't appear all that "big".



Source: EIA

Crude Oil Inventories at 16 Year High

WSJ reports:

Crude oil futures ended lower Wednesday as U.S. inventories soared to 16-year highs, but they found support from a sharp drop in stockpiles at a key oil hub.

The federal Energy Information Administration reported that U.S. crude oil inventories jumped 3.3 million barrels to 356.6 million in the week ended March 20, more than double analysts' forecasts, to send stockpiles to the highest level since July 1993.

However, crude inventories at Nymex delivery point Cushing, Okla., were down 2.2 million barrels, while gasoline and distillate levels also fell much more than expected.

Source: EIA

EIA Cuts Oil Price Forecast

The EIA reports:

The annual price of West Texas Intermediate (WTI) crude oil averaged $100 per barrel in 2008. The global economic slowdown is projected to cut these prices by more than half, to average $42 per barrel in 2009 and $53 in 2010—forecasts slightly lower than last month’s Outlook.

Source: EIA

Russia-China Oil Deal

EconomPic got an anonymous post that I've been meaning to reply to:

Anyone see this yet? China loans $25B to Russia for ~2.2B barrels of oil...that's less than $12 per barrel. Peak oil? Hmmmmm....

Further details of the transaction per Reuters:

Transneft and China National Petroleum Company (CNPC) agreed in October to build a spur to carry 15 million tonnes a year, or 300,000 barrels per day, between the countries' trunk pipelines.

Over 20 years, this adds up to 300 million tonnes, worth almost $90 billion at current prices, and enough to meet around four percent of China's current oil needs.

That last part is key... over 20 years. This is the equivalent of giving Russia a 20 year loan and expecting it to be paid back over the next 20 years. Solving for the payment size given a $25 billion present value, 365 * 20 periods, and whatever interest rate you want to assume you get the following:



Assuming a 10-12% interest rate (that of the Russian sovereign debt) over the 20 year "investment", then the price is more like $25-$30 per barrel. Looks like it could be a nice deal, but $12 it isn't.

Oil Ready to Crash?

The following adds a little more color to last week's post Oil Tankers are a Banks Best Friend. For those that missed it, factors have appeared in the oil market that make it attractive for investors to buy oil in the spot market, store it, and sell through the (higher priced) oil futures market. Now that storage is reaching capacity, there is a significant possibility the spot price of crude will "tank" as a source of demand (storage) is no longer available. This is especially true for WTI crude, which is delivered in Cushing, OK and HAS reached its limits according to Marketwatch:

Inventory levels at Cushing, Okla. -- the delivery point for Nymex oil futures -- rose by 0.2 million barrels to a record 33.2 million barrels, the EIA reported. Platts estimates that maximum storage capacity at Cushing is about 42.4 million barrels, but only 80% of that is considered operable.

This suggests that maximum operating capacity is about 34 million barrels, meaning there is little room to add to storage tanks out in Cushing, according to Linda Rafield, senior oil analyst at Platts.

Assuming that 34 million barrels is an accurate level of the maximum capacity in Cushing (i.e. 98% of the capacity is filled) this explain why the price of WTI crude has fallen so much relative to Brent and makes the case for a potential crash in the WTI crude spot market.

Source: EIA

Oil Tankers are a Banks Best Friend

According to Wikipedia, contango is:

a term used in the futures market to describe an upward sloping forward curve (as in the normal yield curve). Such a forward curve is said to be "in contango" (or sometimes "contangoed").

Formally, it is the situation where, and the amount by which, the price of a commodity for future delivery is higher than the spot price, or a far future delivery price higher than a nearer future delivery.

How large "should" this contango be? Back to Wikipedia (bold mine):

A contango is normal for a non-perishable commodity which has a cost of carry. Such costs include warehousing fees and interest forgone on money tied up, less income from leasing out the commodity if possible (e.g. gold). The contango should not exceed the cost of carry, because producers and consumers can compare the futures contract price against the spot price plus storage, and choose the better one. Arbitrageurs can sell one and buy the other for a risk-free profit too.

Based on this expectation, the current contango witnessed is EXTREMELY excessive. As of the latest figures, contango (as measured below by the spot rate vs. the futures rate 6 months out), the difference is ~15% annualized. This against some of the lowest short-term financing rates we've seen in years (i.e. this is a huge arbitrage opportunity).

Why does this contango exist? My theory is oil producing countries NEED money (budgets were based on $60, not $30 oil) so are willing to sell at whatever the current market price is. And speculators / arbitragers are willing to buy at this price knowing they can sell for a higher amount in the futures market and deliver that oil when / if necessary. This tells me that there is actually artificial demand even at these low prices (from those storing vs. those using the oil) and prices can / will go even lower once storage capacity is completely filled as the market becomes flooded with this stored oil.

And this is exactly what is happening (per Bloomberg):

Morgan Stanley is seeking a supertanker to store crude oil, joining Citigroup Inc. and Royal Dutch Shell Plc in trying to profit from higher prices later in the year, four shipbrokers said. The bank has yet to find a suitable vessel, said one of the brokers, all of whom asked not to be identified because the information is private. Carlos Melville, a spokesman for Morgan Stanley in London, declined to comment. “There’s a lot of people looking for storage,” Denis Petropoulos, London-based head of tankers at Braemar Shipping Services Plc, the world’s second-largest publicly traded shipbroker, said by phone.

Update: Mish has a great explanation for the current dislocation between WTIC and Brent Crude.

As long as storage is available at Cushing -- and given the steep rise in inventories reported by the Energy Information Administration today, storage clearly has been available -- excess oil will go to where it is easiest to take advantage of the contango structure in the market. The eye-popping contango of almost $13/b between February and August WTI is a direct result of the overhang of oil on the market, and the fact that there was available storage at least through last week brought the world's excess oil overhang.

With 32.182 million barrels now sitting in Cushing, the market appears poised to test the limits of storage capacity there. So it's WTI that's reflecting what is going on in the world: the collapse in demand, oversupply and a resulting enormous contango that is encouraging storage. On this one, WTI is ahead of the curve, not behind.

Oil Sources by Region

This surprised me...


Source: Jon Udelt via The Big Picture