ELAM: Mood moves the oil market

Compare the rhetoric of 2018, wildly, braced, severed, with that of 2016, huge excess. The extremes of mood literally leap off the page. In fact the unleaded gasoline futures price touched 96.7 cents February 8, 2016. That was the low in gasoline prices and the mood immediately reversed. The above prediction of course includes federal and state taxes on gasoline, so the retail price never hit $1. Friday unleaded gasoline futures were $2.17.

Conventional wisdom would have one believe that OPEC mopped up all that excess supply of the world glut of oil. Hmm, did OPEC solve the gasoline glut in the U.S. Midwest I wonder? But really, did demand for gasoline double in the last two years, price clearly did. Uh no, demand did not double. Crude oil and unleaded gasoline are both economics and financial bets on what might happen. And with bets comprising stocks, futures, options and unregulated derivatives, there are manifold opportunities to magnify the despair of Feb. 10, 2016 into the optimism of May 10, 2018.

I began this column on Thursday, but Friday’s news is confirmed my thesis that mood moves the oil price. Friday’s WSJ reported that WTIC may be $71, but good luck getting that price in Midland. Most producers are getting less than $60. The reason is that supply has outstripped the ability to move oil to the markets. One analyst predicts Permian Basin oil may trade at a $20 discount to WTIC by next year. So there is no shortage here. Indeed the hand wringing over price discounts seems to be going the other way.

It is hardly the case that OPEC has reduced supply. And with so much of the slippery stuff around, and discount predictions on the rise, could a two-year price high occur in the near future? IF the real world price is less than $60, the futures at $71 seems, well, pricey.