• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing

Here's Why Oil Is Unable to Rally Despite Low Inventories

The oil market is not only about supply but it is also about demand.
By MALEEHA BENGALI
Sep 22, 2022 | 10:15 AM EDT

The long oil call has been the most covered story since the Russian invasion of Ukraine. Calls of oil heading to $150 to $200 were echoed across trading floors when the Russians walked into Ukraine as the market grew worried that all 10 mbpd of Russian oil would be lost forever from the market as the rest of the world put sanctions to limit Russia's reach.

It was being punished by the Big Brother (aka, the western world) for daring to breach peace treaties that have been in place for decades. Low and behold as the weeks carried on the world realized that other than the US and its allies, the rest of the world cared more about their economy's trade balance than respecting historical geographical boundaries.

As China and India soaked in the cheap Russian barrels, it became apparent that the Russian oil would not be lost, it was just getting re-routed as the global alliances were shifting.

There has been a secular theme to the oil markets since the start of the year. Inventories across key products like gasoline and distillate along with OECD crude inventories have been depleting, trading at lows for this time of year and especially vs. their five-year average.

The US Strategic Petroleum Reserve has come in handy offloading barrels each week that has helped in compensating for the lost OECD barrels, but the concern now grows that the US itself is getting "low" on oil. Yet the oil prices are unable to stage a recovery despite these bullish shrieks of how the world is running out of oil.

Supply and Demand

The oil market is not only about supply but it is also about demand. Demand has been unusually weak for this time of the year as seen by the four-week moving average data reported week on week. Gasoline demand is below pre-Covid levels and well below most summer seasonal norms. US consumers are paying attention to their discretionary spending as they save their disposable income to pay for their gas, electricity and housing bills that have doubled if not quadrupled.

The manufacturing slowdown is hitting distillate demand. This is all adding up as we are now seeing inventories slowly build over the past few weeks. Prices fell 40% from the middle of June, and the data is only now reflecting it. The market prices in what is being felt today not what will happen tomorrow. Prices move first and then the data follows.

There are some commodity markets that may be better positioned from a demand/supply balance point of view, but even they are not rallying to new highs. Commodities can no longer be looked at in isolation as it is not just about the bottoms up story. It is also about the global macroeconomic cycle and that is showing consistent weakness with global central banks unable to help their investors as this time inflation is just too high for them to print their way out of it. They are more than aware what happened back in the 70s and 80s, and want to avoid that outcome now.

The Fed's Powell spoke at the FOMC yesterday and reiterated the Fed's desire to keep raising rates to get inflation back down to their 2% goal. Desperate cries of the Fed being close to a pivot are used to justify a rally, which gets washed away each time they see the Fed is unwilling to budge.

The Fed is playing a very dangerous game here, but the bond markets have blinked and spreads have inverted the most since the 1980s and these levels are associated with past financial crises. The Fed keeps saying they will be able to engineer a soft landing, just like they thought inflation was "transitory" after boosting the economy with trillions of dollars in a few months. Of course, we believe them.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Maleeha Bengali had no position in the securities mentioned.

TAGS: Commodities | Economic Data | Economy | Investing | Markets | Oil | Trading | Russia |

More from Investing

Chevron Is Not Only Greasing the Wheels, It's Turbocharging Them

Jim Collins
Jan 26, 2023 5:07 PM EST

Let's look at why CVX's buyback news is a big deal for investors.

Traders Hold Their Noses and Buy

James "Rev Shark" DePorre
Jan 26, 2023 4:27 PM EST

The dull market got a boost from Tesla, but this is not the kind of action we want to see.

Phillips 66 Looks Like It's on the Right Route

Bruce Kamich
Jan 26, 2023 1:33 PM EST

PSX appears poised for further gains as earnings approach, according to the charts and indicators.

In the Wild World of Crypto, a Wild Bitcoin Play Is the Best Call

Mark Abssy
Jan 26, 2023 1:24 PM EST

The situation for bitcoin investors right now is tough, but as we look at the crypto exchange-traded funds and the digital currency, I see one good 'option.'

The Long-Term Trend of Booz Allen Hamilton Is Bullish

Bruce Kamich
Jan 26, 2023 12:15 PM EST

If the earnings report is bearish, here's what to know.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 03:06 PM EST BOB LANG

    LEAPS Webinar

    This week, I offered a free webinar session talkin...
  • 02:53 PM EST REAL MONEY

    LIVE EVENT: Chris Versace and "Sarge" Guilfoyle Share Their Stock Market Insights

    This Monday, Jan. 30, at 12 p.m., our very own exp...
  • 04:58 PM EST REAL MONEY

    The Latest AAP Podcast!

    Listen in as AAP Tackles Earnings, the Fed, Recess...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login