Anyone who followed supply/demand balances might look at the above chart from oil analysts Petromatrix, and conclude that crude oil markets should be relatively weak today. It shows that US oil stocks are only 2.2mb below the record level seen in September 1990, and have grown by 83mb since March.
But this is not the view taken by those operating in financial markets. They see a bullish story, and oil prices actually rose on the news. Amrita Sen, of Barclays Capital, was typical in telling clients that "the long wait for oil prices to break past $80 has finally come to fruition, as sentiment aligns with fundamentals".
Sen also claimed that "actual demand data had finally started to perform strongly and consistently". But the blog is slightly puzzled as to how an 83mbd rise in inventory in the world's largest market could be viewed as bullish, especially when other markets also seem to be slowing. China's oil imports, for example, fell by 150kbpd in July versus 2009.
Petromatrix also report that tanker "rates in crude oil are at the lowest level of the year". Rates on the major Arabian Gulf - Japan route have fallen 50% since June, and are now at, or below, operating costs. And whilst tanker rates can fall for many reasons, they don't usually crash 50% when demand is strong.
The only rational explanation is that oil markets are in a speculative mania. This, as we saw during the US housing mania in 2006/7, means that players become blind to the underlying state of demand. Instead, they focus on what other traders are doing. And in oil markets, as Mike Fitzpatrick of MF Global notes, "upward momentum is still vibrant".
One day, maybe soon, fundamentals will burst the bubble. And the blog's worry is that when this happens, and the momentum players finally panic and try to sell in a falling market, it will be the users in the chemical industry who have to pick up the pieces.