The oil futures market took the world for a ride last night as August crude closed at US$61.28 a barrel – the first time it’s finished above $60. That in turn will result in another rash of predictable shock horror petrol price stories here. Too bad it was just a case of the old Redfern Rain syndrome.
When I was given the AFR‘s commodities column to write 25-odd years ago, one of the early lessons was the “Rain in Redfern” phenomenon. Way back in the last century, the live cattle contract was one of the Sydney Futures Exchange’s busiest. A fundamental of the cattle market, particularly after a dry spell, was that good rain would see prices rise as stock was held back from sale. The joke was that as the Sydney speculators became aware of that trend, they tended to buy cattle futures when their heads got wet – never mind that it might be bone dry west of the Great Divide. I know a former weatherman who claims to have made a nice little earner for a while going long ahead of predicted Sydney rain and then selling into the rally when it came down. Rain in Redfern.
Last night’s oil rally looks similarly foolish. The excuse was Tropical Storm Cindy in the Gulf of Mexico which was forcing the shut-in of 12.7% of the Gulf’s daily oil production. That might sound impressive – but it’s only 190,506 barrels a day according to the US Minerals Management Service. And that compares with US crude inventories of 328.5 million barrels on 24 June – only six million barrels below the six-year highs in May. This week’s crude inventories figures have been delayed a day by the 4 July holiday and will be released tonight.
There is a bigger cyclone threatening to follow Cindy, but these things come and go quite quickly and together will barely dent such large stockpiles. It’s Redfern rain in a skittish market that’s become the plaything of speculators.