The price of oil retreats

As expected, the rally won't last.  After a nice run-up of some $8 a barrel over the past 3-4 weeks, the smart guys have taken profits the last two days.  An article on Bloomberg.com this morning has interesting quotes one can use to support either side--the bulls or the bears.  As a bear, I think this quote is most pertinent:

 “An early rally in prices before a deficit materializes would prove self-defeating,” Jeffrey Currie, head of commodities research at Goldman Sachs in New York, said in a report on March 11.

The deficit he's talking about is the supply-demand balance.  Given the current glut of crude inventory, higher prices won't be supported until global supply falls below global demand--a supply deficit is necessary to reduce inventories.  As investors' bets drive up oil prices in the short-term, the "deficit" necessary to draw down stocks won't be created.  Financial bets distort the underlying real changes necessary to bring markets back into balance.

Tomorrow's crude inventory report, which is released at 10:30 a.m., should cause a good jolt in prices--one way or  the other--depending upon the outcome.  If inventories decline, then WTI should see a jump up; if they rise, as they've done for months now, then we'll see a third day of price declines.

Interesting times.