The Nymex price stands at $112.29 over the Easter weekend, with Brent at $125.41. AAA Fuel Gauge puts the national average gasoline price at $3.856, which puts us on track for $4/gallon in early May. These prices are very high, and are no doubt affecting the "recovery" in ways that may not show up in official government statistics until some months from now. I won't raise the alarm level until I see convincing evidence of a genuine price shock driven by market fundamentals.
Oil Alarm Level — Orange
For wise members of the species Homo sapiens, oil is like money—they are completely incapable of having a rational discussion about it. Views of the situation are driven by unfettered self-interest. Lies abound. Thus almost all the reasons offered for why the oil price is what it is, or why the price moves this way or that way from day to day, are total bullshit. These are my conclusions after years of watching the oil markets, but lately, things have gotten completely out of hand.
Human irrationality (or corruption) was especially egregious this week. President Obama directed his attorney general Eric Holder to launch a probe looking for fraud or price manipulation in the oil and gasoline markets. He wants to look like he's doing something. Or maybe being a Good Liberal, he wants to investigate the oil company fraud that surely must underlie any increase in the oil price. To his credit, the O-Man has resisted efforts to tap the strategic petroleum reserve.
Now, if Obama really wanted to do something, he could pressure the CFTC to impose position limits on paper speculators in the market, as the Dodd-Frank bill directed them to do. There will never be a better time to do that than right now. But nobody talks about limiting paper contracts held because doing so would interfere with the trading profits of the big banks—JPMorgan Chase, Goldman Sachs, Morgan Stanley, HSBC, UBS, and BOA-Merrill Lynch. Read U.S. Consumers Have Big Banks To Blame For High Gasoline Prices. And then read The Real Reason Why Gas Prices Are Soaring.
And then there was this gem Saudis Slash Output, Say Market Oversupplied—
Saudi Arabia's oil minister said on Sunday the kingdom had slashed output by 800,000 barrels per day in March due to oversupply, sending the strongest signal yet that OPEC will not act to quell soaring prices...
Consumers have urged the exporters' group to pump more crude to put a cap on oil, which surged to more than $127 a barrel this month, its highest level in 2 1/2 years amid unrest in North Africa and the Middle East.
"The market is overbalanced ... Our production in February was 9.125 million barrels per day (bpd), in March it was 8.292 million bpd. In April we don't know yet, probably a little higher than March. The reason I gave you these numbers is to show you that the market is oversupplied," Naimi told reporters.
Two Saudi-based industry sources told Reuters last week the kingdom had cut output due to poor demand, prompting selling by traders who saw it as a sign of a well-supplied market.
But crude rebounded later in the week on optimism about the state of the U.S. economy.
Optimism about the U.S. economy? Is your bullshit detector in the Red Zone yet? The very same economy that is being driven to its knees by high oil prices? Jesus wept.
And you know what? The Saudis are right! Or at least, there is no evidence they are wrong. Even IEA head Nobuo Tanaka, who looks out for the best interests of the oil consuming nations, is unwilling to say the market is undersupplied.
Oil markets were well supplied for now, but producer group OPEC would need to be prepared to boost output in June or July as European refineries come back online after seasonal maintenance and as Japan begins reconstruction in the wake of its devastating earthquake and tsunami last month, Tanaka said.
Thus "consumers" can yell until they are blue in the face that OPEC should raise production, but it won't affect the price they're paying, which is driven by bank-run trading and ETFs (index trading), and hedging against the falling dollar. The average monthly crude price for April will only be a few bucks higher than it was in March, whether Saudi Arabia does or does not produce those 800,000 barrels per day.
And so it goes, day after day, more nonsense than you can shake a stick at. I may discontinue these Saturday reports. It's just too discouraging to report on this stuff.