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Gartman: This Should Worry Oil Bulls

Gartman: This Should Worry Oil Bulls
  • Dennis Gartman says Goldman Sachs is "rather late" to the bearish party with its $20 oil call.
  • Gartman added China will still be the largest contributor to crude demand, despite slowing growth.

Dennis Gartman discussed in his daily publication (The Gartman Letter) that Goldman Sachs' bearish oil call, in which analysts stated crude could see downside to $20 per barrel, is "rather late to the bearish party."

Gartman went on to note that the weekly EIA's inventory of crude and products, which rose 2.6 million barrels, was "perhaps a bit bearish." The 2.6 million barrel increase in crude inventories coupled with the 1.4 million barrel increase in product inventories took the aggregated inventory to +4.0 million; "that was.. and still is… a bit bearish of prices," he wrote.

The real zinger, though: "The increase in crude inventories was primarily the result of decreased refinery activity last week...Thus, having peaked back earlier this year at approximately 490 million barrels, and having fallen recently to just over 450 million barrels, the fact that crude inventories are back near to 460 million barrels is worrisome to those who are bullish of crude."

On the other hand, the average front month contango for Brent and WTI has narrowed to $6.62 Friday morning from $6.85 a day ago. Gartman pointed out this represents a "slightly wider" contango than a week ago, but it has narrowed from last month's end by $0.42 per barrel when the spot price was almost the same as it was on Friday morning. As such, over the past few weeks, crude has been "bidding somewhat less aggressively" for storage.

What About China?

Moving on to China, Gartman cited Platts China Oil Analytics, a firm that's out with a new forecast for the country's five-year oil needs. According to Platts, the country will "remain heavily reliant on imported crude to feed its burgeoning coastal refining hubs" at a time when its domestic shale and other energy sources "remain muted."

Platts also predicted that China's overall crude imports from Middle East countries will decline to 50 percent from 52 percent today over the next five years as other regional energy suppliers gain share. At the same time, crude imports to China from Latin American countries could rise to 15 percent of total imports, up from 11 percent a year ago.

Gartman further hinted that investors (such as himself) who often overlook geo-politics may need to pay even more attention over the coming years (and decades) if Platts outlook is correct.


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