Crude inventories are now up, what? 30 million barrels inside of a month and a half?

But that’s not what should have you worried, if you’re long oil like a Societe Generale pig-dog. No, what should scare you, truly, is, why are inventories rising this much, this fast, now, when market conditions have been like this for almost half a year?

I’ve got two guesses. The first is that Europe has actually contracted far enough that multimillion barrel inventory builds are just the normal at these prices. That’s the first guess.

But I’m not convinced that’s right. Europe was spiraling into the abyss much before this, and the oil inventory reports only just recently jumped significantly higher. I would have expected a more consistent ramp in the numbers if this were simply a property of Europe vanishing.

Which brings me to my second guess: alternative storage locations – shadow inventory, if you will – have taken all they can of the oil, and now there’s nowhere left to go but the publicly visible facilities.

And if my second guess is on the mark, then you should be worried – most worried – vagrant oil bulls, because if prices keep sagging, there will be no limit to the amount of oil that will drown any attempt you may have to get to the exits.

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The most savory, satisfying taste of vengeance is in my mouth, as the Erinyes circle overhead, preparing to exact my Fury.

The pause in this campaign is over. My temporary setbacks have been dealt with. Now I will regain what is rightfully mine, by force whilst comfortable decorated in my finest war tent.

Those of you who clamored to by oil (helping to give the banks bids to sell their stock to, I would add) are now like little piles of straw; dry tinder for my spreading fire. You will begin to feel the strain as my war machine marches over your backside.

You are soaked in your precious oil, and I am over here playing with matches.

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Ha, it always does my heart good to watch these vermin get entrapped by flighty visions of loose monetary policy tied to the yesteryears of 2009-2010, only to have Bernanke and Draghi flick the ashes of cigars onto their heads, transforming them into financial infernos.

I should feel the need to remind you that we are just two months out now from a most spectacular 2012 ONE YEAR REUNION OF QE SPECULATORS AND COLD, MERCILESS FATE party.

Get your confetti, mix it diligently with copper dust and a light sprinkling of gasoline and gunpowder, while using your bare hands, standing on a shag carpet – because it’s going to be an explosive event of ineptitude coming to full fruition.

So far, oil has bounced reliably off the $102 mark, based on some lunatic’s theory that the rest of the free world gives a fuck about the budgets of Russia or Saudi Arabia.

I’m not getting my hopes up that this sell off will be “the one”. I’ve witnessed the rebound too many times to dare try for such a call. But it’s coming. The 9th floor will not be denied for much longer…

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Take a look at the futures curve of natural gas, and then tell me;

tell me, how exactly you think you’re going to “nail” this bottom, Bob Pisani style;

go on…I’m waiting.

If you’ll notice that futures contracts for delivery of natural gas are 50% higher just two months out, I would tell you you’ve earned a cookie. If you would say that they’re more than double about three years out, I’d actually consider shipping one to you.

This is obviously a storage issue. There is obviously not enough storage space to hold all the gas they’re pumping out of the ground.

So explain to me how you’re loading up on all that cheap GAS and are going to double or triple your money from the $2 spot price.

You want to know who’s going to “nail” the natural gas trade? Industry insiders. Their SEC handlers. And US Senators.

People who work for one of the companies that are rushing to expand storage capacity and have a pretty good idea, within a two month time frame, of when that capacity is going to come online, will be able to load up on natty, maybe at $0.

The rest of us are not “nailing” anything. If you buy a 1 month gas future, tell me;

TELL ME!

Where the fuck do you plan on putting the gas?

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Miraculously, the Fed did not change their tune at all…again. Nor did they speculate in any way, shape or form about enacting further easing anytime within the immediate vicinity of “now”.

Not that that will stop the rumors of further intervention in the slightest. It’s been quiet since the FOMC announcement, but I’ll give it another hour before the die hards are running back through the streets, throwing flaming garbage at people’s doorstep.

More importantly for me, oil corrected hard this morning and has been bouncing around a slight selloff, thanks to a mingling of two developments.

The first was all estimates of oil supplies getting lit up like a Kuwait field at the hands of Hussein, as a 4 million inventory build come through the line. That makes a 22 million barrel build of inventory in the last month.

The second is a report that Iran’s envoy is Moscow has been saying Iran would be willing to hit the brakes on the nuclear program to stop the EU from putting the embargo in place. With regards to this, I doubt it. I’m sure the envoy did say that, but the instant it comes time for the Iranian clerics to actually come to the table, they definitely will back out. They built a regime on appearing in a position of total power. How would that look, if “God’s servants” got forced into submission by “the evil ones”?

Still, there was never going to be a war with Iran. Maybe at best a decimation of Iran masquerading as a war, Iraq and Afghanistan style. One where America loses a few thousand people, pisses away a few billion of borrowed money, and generally crushes their entire civilization. That’s not a secret, so the Iranians aren’t going to do shit, and we know it.

Basically, oil markets are moments (in market time, naturally) away from massive implosion. Risk premium from a supply disruption is far overpriced, and thanks to manufacturing slowing across the entire planet, our inventories continue to swell excessively.

When this realization finally dawns on the crowd, the kinds of estimates for oil prices being ventured by Goldman Sachs and Friends are going to be a distant joke. Of course, $GS will have unloaded plenty of their own stock on Gonzo by then.

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Natural gas is more expensive to store than oil.

The process involves liquefying the gas under extreme cold, if I remember right.  It’s an intensive process, and has a higher maintenance upkeep cost than storing natural liquids unless I’m mistaken.

Natural gas spare storage space is in short supply.

Producers have no room to store the extra gas that is coming out of the ground.  If they want to keep pumping, they need to clear out some cubic feet first.

Natural gas is a byproduct of drilling for oil.

It’s not like all gas producers can just shut down.  Unless they want to let the gas escape into the atmosphere (not sure that’s legal, ethical, or profitable), or else shut down oil extraction, then gas is going to keep coming, whether there’s somewhere to put it or not.

These three things have kept me sidelined in face of the “cheapness” that is natural gas.  While the value of gas, from the standpoint of using it for energy is without question undervalued, well….it can get a lot cheaper nonetheless.

From the point of view that is oil producers, it’s not a choice to shut down production.  And if it’s between selling the gas they’re recovering from oil fields for mere pennies, or losing it altogether, they’ll liquidate those holdings for pennies.

My guess; right now speculators are holding too many short term futures betting on “the bottom,” to make buying financial plays on natural gas profitable, or even safe for that matter.  I need to see gas spike lower as these lot get wiped out, before being willing to dip my toe in.

Because unless you’ve personally got an empty natural gas storage facility to back up your bet, and enough money to keep it running, the gas can and will keep flowing into markets for ever cheaper prices…

Since this winter, I’ve been thinking buying natural gas in the summer should be a good plan.  Probably right in the middle of June or July.  My reasoning was that the summer months will show just how backed up the natural gas infrustructure can get, and force the lowest prices on the part of producers.  Then it’s smooth sailing to ride into the winter.

This all depends on forcasts for winter weather.  If I’m seeing talk of another warm winter, I’m not touching natty on any future closer than 2 years.  But I think a lot of this winter was caused by that once-a-decade phenomenon, El Nino or La Nina, or…whatever.

The point is: let the market collapse more, and let the Farmer’s Almanac be your guide.  If this is the bottom, you won’t lose anything by not putting yourself on the line.

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