Goldman’s David Greely is making a near-term bullish case for oil. His optimism is driven by A) The strong U.S. ISM Manufacturing data we had two days back, B) the fact that renewed Nigerian violence threatens supply, and C) the reduction in overhang caused by oil hoarded at sea in tankers (floating storage).
While the relationship appears far from perfect, he argues that U.S. oil demand tends to track ISM Manufacturing Index readings:
Most interestingly for short-term traders, Falling floating storage implies a tighter market, since less supply is basically out there ready to be sold into the market.
David Greely @ Goldman: [emphasis added] The area where the improvement in near-term fundamentals has been most pronounced in recent weeks is in the amount of oil in floating storage. The use of tankers to store excess supplies of crude oil and gasoil over the past year has been emblematic of the weakness in supply-demand fundamentals during the recession, and the unloading of these tankers has been broadly viewed as a necessary precursor to a cleanup over the overall oil market. Consequently, reports that anywhere from 0 to 50 million barrels of the total oil in floating storage has been recently unloaded have suggested a potential turn around in oil market fundamentals.
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(Via Goldman Sachs, Energy Weekly, David Greely, 3 February 2010)