Energy stocks caught a rare bid on Wednesday's trading after the release of the Energy Information Administration's Weekly Petroleum Status Report. Investors jumped on the inventory data, as they always do, and this week's report was certainly bullish on the supply side. U.S. petroleum inventories declined 10.0 million barrels week-on-week to 427.8 million barrels. Inventories of gasoline also declined on the week, and that helped offset the unwelcome news that U.S production averaged 12.5 million barrels last week, another all-time high for the output of the resurgent U.S. energy complex.
Net imports of 2.909 mmbpd also represented a new record low, at least in my recollection, anyway, Clearly, the Trump Administration's dream - as elucidated by the Commander-in-Chief and his Energy Secretary, the former Texas governor Rick Perry - of energy independence evolving into energy dominance no longer seems so far-fetched.
Obviously one should never overreact to one week's data point, especially when the first look is always on a week-on-week basis. Changes take place over longer periods. On a year-on-year basis, U.S. oil inventories are actually running about 5% above last August's level.
I have mentioned this in prior RM columns, but I find demand more important than supply when analyzing the oil market, although energy traders tend to respond In Pavolovian manner to the supply-side data. The EIA's shorthand for demand is "products supplied" and those figures presented a mixed picture in this week's report.
Over the past four weeks, total products supplied in the domestic market rose 2.4% and motor gasoline product supplied rose 2.3%. Solid figures, for sure. On the other hand, though, distillate fuel product supplied fell 5.5% over that period and jet fuel product supplied fell 1.2%.
So, while the products used by consumers - plain old refined gas - are growing solidly, those refined products that are used solely for commercial operations - not too many consumers buy jet fuel - are showing signs of a slowdown.
This data is more evidence of the weird situation currently facing the U.S economy. Could anything be weirder than a yield curve in which the 30-year UST's yield is lower than the 3-month T-Bill's yield, and that 30-year bond is yielding an all-time low amount? Well, the bifurcation between the strong U.S consumer market and the weak U.S. commercial market is not a normal thing. In fact, the Fed noted weak business investment as a key risk facing the U.S. economy in the most recent statement of the Federal Open Market Committee.
Consumers provide the end market, obviously, for the products produced by businesses, so who's right? Are consumers too optimistic or are CEOs too pessimistic?
What U.S. consumers don't see is the absolute wasteland that is the rest of the world's economy. China's economic engine has ground to a halt, Europe is dying a slow, demographically-induced death, and one of the bright spots, the UK, is about to have a Breixt-induced slowdown. Also, most of the world's emerging markets supply raw materials not to the U.S. - we don't make many things in this country anymore - but to China, so weakness there is filtering through the emerging market economies.
Does that stop anyone from ordering stuff from Amazon (AMZN) , binging Netflix (NFLX) or wasting time on the morass of idiocy that is Facebook (FB) ? Of course not. Longer-term, though, the global financial system is interconnected in ways that did not even exist as recently as the Great Financial Crisis of 2008-2009. China has figured out debt financing in the past decade, and with an estimated $43 trillion in debt outstanding, boy, do they like it.
The bond market is telling you to worry about what's happening elsewhere. Ignore that at your peril. Fortress America is a myth. The S&P 500 could indeed catch the rest of the world's cold, and I am investing in bonds as an antibiotic.