The Insanity of Oil Analysts, Reporters and Headlines All Rolled Into An Irrational Market

I can't figure it out. We see the headlines on a daily basis and they're often completely contradictory from morning to afternoon.

"Crude rises on signs of increased demand"
"Oil above $70 as inventories fall"
"Crude falls on profit taking"
"Oil inventories rise signaling slowing demand"

It's insane.

Much like the diet magazines at the checkout line. Month after month, issue after issue, touting the same ridiculous headlines and rehashing the same material over and over. Apparently they keep on selling. Just like these headlines being sold to the public on a daily basis.

Here's the latest headline today from AP via Yahoo. "Oil rises above $71 amid falling inventories"
The sub-headline states that this points 'to improving demand'.

What?

The author (Pablo Gorondi) notes further along in this piece that: "While U.S. inventories are still bloated with the most oil in nearly 16 years, analysts see the recent drawdowns as a sign that gasoline demand is recovering." Gotta hand it to those analysts! We'll talk about them more below...

Sure, the US reserves have come down over the past 4 weeks to still be at this near 16 year high but there are a couple of good reasons for it.

1) We are importing less oil
2) We are using less oil

To top it off, the Energy Information Administration (EIA) reported on June 17 that gasoline demand is essentially unchanged from a year ago.

Let's quickly recap:
- the US has the highest level of reserves on hand in almost 16 years (lots of supply)
- we're importing less oil (we don't need as much right now)
- US demand for gasoline products is essentially unchanged from a year ago (see? We really don't need as much right now)

Pretty straightforward stuff - easy to understand, right?

Time to dig a little bit deeper.

Mr. Gorondi's article also notes:
"Goldman (Sachs) said it expects the prices of oil to rise to $85 a barrel in six months and reach $95 by the end of 2010."

-and-

"We continue to expect an improvement in fundamentals to begin to take hold in the next several months," Goldman Sachs said in a report. "Recent data points have already begun to suggest some stabilization."

Goldman, like all the other big firms, trades in oil. They trade big money in oil.

Bloomberg recently had an article outlining the fact that global offshore oil storage is the highest it's been in two decades. An excerpt:

"Traders are now seeking to store oil products. JPMorgan Chase & Co. booked the newly built supertanker Front Queen to store 2 million barrels of heating oil off the coast of Malta, and several other traders are seeking similar deals, Athens- based Optima Shipbrokers said June 2."

So, these 'analysts' are predicting that oil prices will climb even as inventories bulge and demand remains stagnant. How can they be so confident? Well, when the traders themselves take delivery of the oil and keep it offshore, out of the domestic supply they can, in effect, manipulate the prices all they want. They are now controlling a portion of the supply chain.

I'm all for rampant capitalism and trying to make as much as possible whenever you can, but I'm also for playing by the rules. If I had the funds to store oil offshore and make a call as to just how high I thought oil was going, maybe I'd feel differently, but I don't have that kind of money. The funny thing is, it sounds like Goldman doesn't necessarily have it either but they seem to have gotten their hands on it. How?

Rumor has it, Goldman is using TARP funds (i.e.: TAXPAYER DOLLARS) to fund their operation.

Take a look through this entertaining read that covers all the gory details over at Zero Hedge (Guest Post by Philstockworld). It's from a couple weeks back but it certainly helps to give perspective on the latest EIA report. The big question is, when will we (who funded this operation) get our share of Goldman's profits?

In summary, getting back to the main point, why can't these headlines just tackle the real story?
How about:

"Crude rises as traders keep supply off market"
"Global oil reserves at all time high but held back by banks"
"Analyst predicts crude will rise after his firm stores millions of barrels offshore"

It would certainly make it a hell of a lot easier for the rest of us.