Crude oil prices in the US have jumped back up to above $38 again, leading various financial correlations toward much less depressing interpretations (chiefly stocks). That in turn has allowed the proliferation of the “it’s all over” narrative despite fundamental accounts that continue to suggest otherwise. Being the sharpest rally in WTI since really last April, these reflections appear to be this year’s equivalent to “transitory.”

The rally has continued despite almost every immediate factor in oil suggesting the contrary. Crude oil inventory hit yet another record in the latest US EIA weekly estimates, significantly above last year’s “transitory” storage build. Worse, the rise has been nearly unbroken since last August when so many other economic accounts suggested a similarly depressive turn in economic circumstances.

The buildup in physical crude inventories has ominously extended to gasoline. Gasoline inventory in the US continues to be near record highs (set the week of February 12) with the shift in the physical balance of gasoline appearing during December and January. Reaching 260mm barrels (equivalent), the inventory over the past month is significantly greater than anything in the data series dating back 26 years, suggesting “something” also shifted in physical fundamentals here.

Oil production in the US has declined again, but the adjustment was very slight and not really something that would suggest an $11, nearly 40% move in crude prices. By and large, the production side has once again settled into a quite predictable pattern sideways not unlike when it was rising in almost the same straight line. Production levels have been around 9.1 – 9.2 mbpd since September, meaning that while production was declining somewhat compared to early 2015, crude inventory was still surging in this latest bulge.

That leaves funding conditions as the primary culprit in “allowing” crude oil to spring back much the same as last April (or August). The rough correlation between WTI and CNY exchange remains intact, with crude having surged since China’s Lunar New Year holiday (and the PBOC “liquidity” efforts that went into it).