The last time crude oil stocks were this high was the 3rd week of July, 1993.

http://tonto.eia.doe.gov/dnav/pet/hist/wcestus1w.htm




And the last time we had this many days of crude supply was the 2nd week of November, 1994:

http://tonto.eia.doe.gov/dnav/pet/hist/ ... _daysw.htm

Well thats rather my point if all this oil was stored on land this would indicate we maintained storage tanks that have not been
filled in 15 years. My first reaction when seeing this was I had no idea we still had that much storage capacity we have not
used it in years. However it makes far more sense to assume that these stocks are not actually on land but setting in
supertankers in floating storage. This neatly resolves the issue and also fits well with reports that a lot of tankers where
hired as floating storage. We don't actually have 15 year old storage tanks on land finally being filled.

The problem may be however that this oil is temporarily counted twice once as storage owned by a trader playing the physical contango
and once again as imports when he sales and offloads. Only when the customer counts it as storage and the trader reports lower storage
do the number finally work out right.

In the case that the oil came directly from the producer you don't have this bookkeeping problem. Unless they correct for the fact that the oil is temporarily over counted you get a false gain when floating storage is offloaded.

Thus suggests two things one that as long as there is significant amounts of floating storage being offloaded you can run weeks or months overestimating the total and next that eventually storage levels will drop fairly rapidly as the double counting ends and the books finally balanced.

Correcting for this effect would put the real amount of oil at slightly above the five year range not where its reported. And given the price movement of oil and looking back into the past the current price in my opinion perfectly matches with us being at the top of the five year range or slightly above.

If we really where were its reported then oil should be in the 20-30 dollar range at most and the contango smashed in the market.

This same sort of thing happened at the start of 2007 we showed strong contango lots of storage then it fell rapidly and the price kept rising.

Recently

http://www.bloomberg.com/apps/news?pid= ... 3DSN5JZsBY
http://www.usablemarkets.com/?p=709

And in 2007
http://www.mindfully.org/Energy/2007/Oi ... 6oct07.htm

Although from reading back then floating storage does not seem to have been used as much so I'd say the over counting if I'm right was lower.

To solve this we would have to know exactly how oil thats imported is counted if they do indeed ensure that oil previously reported as inventory by a trader is not also counted as a new import then I'm wrong. I tend to think that they don't simply because its hard to do and its only a temporary overstatement that clears out in time. The unprecedented build in floating storage however would make this clearing take much longer then normal.

And of course my gut feeling is that the market is acting well supplied but not outrageously well supplied I don't get the feeling that the market thinks we are swimming in oil as the report indicates. Its got plenty but its not oversupplied.

^
A more straightforward explanation would be:

1) US crude production is up about a half-million bpd since the start of the year, and up about 80K bpd just in the past month. That's a 3.5 million barrel addition to weekly supply that wasn't there before.

2) As I've been posting here, consumption this year has been declining anywhere from 0.1 percent to 4.4 percent from the year earlier period. As of the most recent 4-week period that's a decline in consumption of 871K bpd.

3) Imports have been declining a bit lately, but largely in tandem with the decline in consumption.

Crude imports


TPS


So, decreased imports are being roughly canceled out by decreasing consumption. Which leaves rising production to make up the balance. As I said, since domestic production has been rising this is why you're seeing stockpiles build up.

The most annoying fact is, the USA could have started filling the SPR at 1 Mbbl/d last November and have saved billions by doing so but our government is so incompetent they didn't and still are not.

It is pointless to say we have 1 Gbbl/capacity if its only 60% filled fer crying out loud, and by taking 1 bbl/d in they would have kept the oil fields working and prevented a heck of a lot of lay offs throughout the oil sector.

wpsr Page 61


Page 46


Page 41

For whatever reason, I started at the back and worked to the front.

I suppose logic will tell us based on the above, that until the oil is unloaded, somewhere in the US, it does not count as an import.



page 50....


page 60

I suppose this is fairly clear.... oil from some foreign land, stored in the gulf in some tanker offshore, is an "import" when it is offloaded, and it appears in the "inventory" at that time, but not really before.

There is plenty of slop in the recording and sampling system, though, which explains some of the crazy fluctuations we see every week.

Deleted long incorrect post.

Sorry pup55 your last quote seemed very clear to me. I jumped the gun a bit.

Assuming at least 50 million barrels where sitting at some point in floating storage then it has been off loaded. Given that Cushing stocks are falling which I take to signal that physical oil traders are now exiting this matches.

How much of the oil imported recently has consisted of oil pumped months ago and finally offloaded from storage ?

Using a scenario 30 million barrels from domestic production and 50 million from offshore storage gives the 90 million barrels of excess.

Now whats interesting is given the import numbers it means we are getting by on about 6-8mbd or so of real oil imports i.e not from stored oil.

Using the US as 25% of the world energy usage and assuming a 1mbd drop gives a global 4mbd drop but it could be 2mbd which gives 8mbd drop in production.
Now what interesting is you can figure that real imports did not drop suddenly but ramped down to what look like at least 1mbd for the US. This means of course that bringing the 50 million barrels on shore happened while real imports where still falling. Again assuming the cushing draw downs signal that most of the floating storage is off loaded one has to wonder where the heck the real supply demand balance is right now. There is a lot of fuzz since we don't really seem to know the split between new oil imports and offloading of floating storage.

http://www.ft.com/cms/s/0/d638d9fc-caf7-11dd-87d7-000077b07658.html?nclick_check=1

Now I am assuming that the bulk of this storage is sitting primarily in the GOM.
http://www.reuters.com/article/rbssIntegratedOilGas/idUSLR18479820090127
This suggest 80 million barrels total which puts 40-50 in the GOM as reasonable.

But this also puts recent cuts in continued production in almost perfect lockstep with falling demand which itself fell rapidly. That does not make sense to me.

Your talking about demand falling by say 1mbd over three months and imports are timed perfectly to match ?

The only way to do that is to assume its coming from tankers setting in the gulf that would give a perfect match which suggest that there is now possibly a build up of tankers from new oil shipments in the gulf given we had to use the 40mb to give our stock builds.

But in general all of this seems to work towards lowering the amount new oil waiting to be off loaded and one is left still puzzled over what the current oil supply is.

It seems like your having to push more and more of our imports over to the column of oil thats set in rented or defacto floating storage for several months bu this pushes up the precentage of oil imports made up of oil pumped several months ago lowering the amount of normal supply.

Now if you go with the second article and its maximum amount of 80 million barrels and assume that it started to get sent to land in Jan you get about 0.888mbd coming in from floating storage.
This is again weirdly a perfect match with the demand drop in OilFinder2 post.

Now whats really strange is OPEC's cuts seem to almost perfectly match demand which matches
our oil build from the earlier build up of floating storage.

Makes you wonder if OPEC compliance with cuts had to do with more with their customers rejecting any further shipments more than with OPEC acting as a cartel.

This of course leave the current rising oil prices as a complete question why on earth are they increasing now ? This makes it hard to believe the current stock builds even if you can make the numbers work. Especially since imports have been falling fairly steadily and the only way to get this floating storage off loaded is to record it as imports.
This leads you all the way back to the demand side of the equation and your forced to figure a much steeper drop in demand close to 2mbd which would allow imports to fall and allow a stock build. Thats and 8% decline. Now if you assume closer to a 8% decline in demand in the US then you can get falling imports and a stock build. But this amount does not seem to match other data like VMT.

I just don't see a way you can take imports falling steadily till recently to down 1mbd add 500kbd of domestic production and say 40 million barrels of floating storage that gets recorded as imports to get the inventory build. And you have to use the 40 million barrels from floating storage to get the build. Somewhere somehow one of these numbers has to be off by 50%.
Or you have significant error spread across several. And last but not least you can guess that the floating storage was maybe offloaded earlier starting in say October and its been steadily offloaded this cuts down significantly on it weekly impact. Your giving your self five months in which to offload all the floating storage with it looks like on last push at the end. If you assume this then your now looking at oil that was potentially held up for months because of the Hurricane damage so it might be the source of all the extra oil. But your still being forced to increase the precentage of imports of oil coming from oil pumped way back in June thats potentially not offloaded until say November. This still pushes down on how much oil arriving for import was actually pumped recently.

Maybe I'm just stupid

I don't see what's so strange about imports falling in tandem with consumption. In fact, it makes perfect sense: If demand drops you import less (assuming domestic production remains about the same, which, over the past few years, it has, almost). Also don't forget during this time that:

1. The price of oil rose to new heights, which would explain most, if not all, of the drop in demand.
2. Until July the dollar had been falling the previous few years, making imports more expensive. More expensive imports = disincentive for refiners to import lots of oil.

Are you expecting some obvious lag between the drop in consumption and the drop in imports? If such a lag did theoretically exist, IMO it probably wouldn't be too noticeable on the charts above. It doesn't take that long to order some oil from Mexico or Venezuela and ship it to Houston. And I would think that someone could cancel an unneeded oil shipment at the last minute, and they could send the ship to China instead. But I know almost nothing about the oil-shipping business so I'm just guessing.

We know for sure that the actual OPEC cutbacks occurred a long time after the demand first started to decline.... If you look at OF2's demand table, you can see that we were still relatively strong up until maybe July.... but I do not think the actual OPEC cutbacks were announced until after the market crashed in September.

Also, we do not know for sure that the global demand change was in equal proportion to the US demand change....We understand that China's demand is down about 16%, and perhaps similar with Japan. No telling how bad Europe is. US is only about 5-6% I think...because we all drive our cars and gasoline consumption has not dropped that much.

But you could see a scenario where in about July, global demand started to collapse... OPEC either chose to leave production where it is, for political purposes, or there was enough cheating by members that the production remained fairly stable... that was when the glut was created. It was put into the tankers then.

Opec gradually cut the production at some time during the fall... but we know from the data that this big inventory buildup in Cushing all happened after the hurricane season.... we wondered all fall why these people were still bringing in 10-11 mbpd with the refineries only using about 14.2 mbpd. Maybe they made the calculation that land storage was cheaper and better than floating storage, and they were so relieved not to be paying $147 per barrel that people bought more than they would normally do, thinking they were getting a bargain.

There is a further wild card in the SPR: about 1.5 million barrels were kept from going into inventory this week because of filling up the SPR. This almost goes back to the Clintonesque practice of trying to support the oil price by strategic additions to the SPR.

But what I think you are getting at is that this glut is temporary... if OPEC and/or the other big suppliers have finally cut back to a sufficient extent that the current global production is now less than the current global consumption, then this big build in inventory, including the 80 million or so that is in floating storage, will eventually start to rebalance, particularly if the SPR purchases increase. The first clue ought to be an increase in tanker rates, since as long as it is cheap to store in floating storage, that is what will happen.

It's just interesting that a lot of this oil is accumulating in North America and in the gulf...

So maybe a worthwhile project would be to check the most recent IEA data for global demand and try to estimate apparent production....Another project might be to look up the most recent tanker rates, to see if they have changed recently.

http://omrpublic.iea.org/

Also: OECD land storage increased by 50 million barrels, all in the US, during the period between September and December.

So there was an excess of production by about 80 million barrels during the third quarter, and about 90 million in the fourth quarter....and some more in the first three months of the year for which there is no data yet.

so there should be about 170 million barrels of oil in the world, excess, in storage somewhere.

About 50 million of it is on land in the US. The remainder has to be elsewhere. It's not in the rest of the OECD, and it's not in the government stocks.



http://www.lloydslist.com/ll/news/opec-output-cuts-send-vlcc-rates-to-seven-year-low/1237300210331.htm

At the current production rate of 83.93, the estimated demand exceeds supply by about .5 mbpd, so there should be a 45 million barrel drawdown per quarter as long as this goes on....


Tanker rates are still cheap.

None of this explains why the price should be going up, except to say, that eventually, probably by the end of the year at this rate, the tsunami of oil that is in all of these tankers will finally be worked down, and we will get to something approaching a reasonable system. I suppose that when demand picks up a bit in the summer, which it still will, the bulk of the glut will be worked off. So, maybe by about hurricane season, we should be approaching some normal inventory buffer.

I suppose that we can develop a little algorithm that can figure out how much crude oil is offloaded into the US based on price..... the owners can make a little extra by sitting on it.... and cash in from time to time when they think they can get some pricing relief.

There is plenty of oil around.

Yep this is one of the scenarios I did not sure if I put it in my post.

About 200 million barrels of excess oil with the 50 million barrels on land represented by excess imports and still about 150 million barrels unaccounted for !

Thats a LOT of missing barrels floating somewhere maybe

And it does not come close to explaining the current price for oil and thats why I don't buy into the official numbers at the moment.

Next I was really taken off guard by the amount of storage builds in the US we are talking about tanks that set empty for 15 years suddenly being filled.

And you find interesting tidbits like this.

http://www.the-infoshop.com/study/gd83230-oil-storage.html



So supposedly we are storing more oil the ever before yet the storage companies are not posting record profits ? Simple supply and demand would indicate that onshore storage prices
should be increasing sharply.

Back to your quote on oil tanker rates. The drop in tanker rates coupled with the draw down in storage at Cushing both indicate that oil traders are no longer increasing their holdings of physical oil. And we have the article I posted stating that physical floating storage was being drained down. So its a safe bet that its getting drained.

One other possibility for our 50 million barrels of oil given that we are maybe not seeing strong profits at tanker storage is it went into drained pipelines.

This would require that the draw down of oil in our pipelines after the hurricanes went unrecorded and that a lot of the oil going in storage really went back into our pipeline network.
This would be in the form of crude and refined products.

Looking at the record after the hurricane damage the oil storage level remained flat.

Obviously I'm looking for a double counting event of some sort.

Now if we assume that a lot of the oil in storage is really just needed to refill our pipeline network and for some reason we did not record the drain down of our network then you get a result thats consistent.

1.) Land storage is at the top or slightly above the 5 year average this is perfectly matched by price.
2.) Storage company profits are low because its going into pipelines.
3.) Contango is steep because normal oil importers are busy refilling pipelines.
4.) On land probably a good bit of the floating storage has itself been offloaded ( speculative)
5.) We probably did not get near a large a build i.e there where never close to 200 million barrels of excess crude in the first place (speculative)


The only assertion which causes real problems is that the draining of the US pipeline network when unrecorded and only its filling was recorded after the Hurricanes. This would be the source of double counting if you will. Thus in the aftermath of the hurricanes record keeping was messed up and they simply used the same numbers from previous weeks. For whatever reason this mistake was never corrected. It makes a lot of sense given the damage that reporting may have been garbled even to the point that a large error entered the system.

If you assume that crude oil stocks actually hit say 275 or lower well below MOL which is fine since we had a huge regional outage and where just above MOL before they hit then this pulls the real crude levels back down to where I'm saying they should be based on price and this interesting report from storage tank owners. And it does not require the sudden refilling of tanks that stood empty for 15 years which I doubt even exist. We have had plenty of periods of steep contango over the last several years and traders never once managed to play the market to the level thats being proposed right now. You can look back to 2000 forward and see they never managed to do what is being stated in the official numbers.

Next this explains several other loose ends. The US did not fill the SPR while oil was cheap because we where refilling our pipeline network they are buying now because the system is finally in good shape.

Saudi finally surge back in the summer before the Hurricanes and continued afterward regardless of the price of oil because at first the US pipeline network was dangerously close to MOL then fell well below. If they had not surged we could have faced a real national emergency after the hurricanes. We went from the frying pan if you will and into the fire.

And last but not least if it really got as bad as I'm suggesting and we have plenty of reports of strain on the pipeline network from that period then you can suspect a lot of political pressure existed to not publish probably highly inaccurate but alarming data.

This is a really interesting theory and deserves a little thinking time.....

We know how the country caught up on gasoline: we imported finished products, and within a month or so, we were back to where we were, apparently.

I would be really interested to know some more about this. One project might be to find out the "capacity" of this pipeline system.

Thanks for thinking about it. My basic assumption is that the current price of oil simply does not reflect the current storage levels. I believe the market. I think at points in time the market can be mislead for a short time but not for long.

The example I used for the oil market is as follows. In the stock market very few shares actually trade at whatever the nominal value is for a stock on a fraction actually are exchanged at that price. So stocks are prices on the marginal trade and thus subject to almost random market forces. Fundamentals eventually prevail but depending on the forces stocks can be misvalued for years. This is because sentiment plays a large role in valuing stocks. They are quite similar to fiat currency and backed largely by faith not actual transactions.

However the oil market is quite different basically all oil sales are eventually indexed off of the various futures markets so effectively all the oil sold is sold or cleared based on the market prices set by the futures market. If the futures market has mispriced oil within the range that physical barrels trade then this will be fairly quickly cleared. Now given the nature of the physical market prices can be distorted for a bit say a few months.

However you have one case where the market can be mislead for a surprisingly long time in fact all commodities markets suffer from this. When the product availability is increasing rapidly a mistake in the absolute amount is very difficult to catch or it has little effect on the short term price. So commodities markets in general are very sensitive to a short term surplus regardless of the absolute magnitude of the change. If you look at grain or NG if you have too much it does not matter how much your over you crash the price. The North American NG market is famously volatile only rivaled by the wheat and corn and soybean markets. Oil because its a lot larger market is actually the least volatile of the commodities markets outside of say sugar.

However ever it still has this problem of pricing in excess it supply even slightly exceeds demand and storage is filling then it simply does not matter how much over on the short term prices will overreact and become depressed. Its a commodity and if you overshoot like any other commodity you get hit hard on prices. To some extent the same for under production but its a bit less dramatic unless persistent depending on storage levels. Only when both production is low and storage is low do you finally get a price increase out of commodities. In general the futures markets really exist for producers to lock in a profit. All other uses are speculation that simply provide liquidity for producers to hedge against low prices. Buyers can always hedge different ways but producers hedging against loss are the reason for futures markets.

Now back to the case of excess the problem is the market can only finally start pricing once and excess condition stabilizes or goes into decline. If the oversupply peaks and declines then prices start increasing or stabilizing and the rate of increase depends on storage levels.

Even this simple model highlights that overall storage levels for oil began to decline back in January as the prices firmed up. They have quickly reason to a level thats trivial to determine from the historical data which indicates the market is well supplied and not far from its top in storage levels for the five year range. Market price is a excellent guide and true to fundamentals when its rising. You have to believe it and that it knows the real storage levels and demand for that matter.

Thus our current numbers have to be wrong. Not might be they in my opinion have to be.
I postulated several variants but the one place that stands out as a source of error is the hurricanes and in fact the price action during the hurricanes and afterward was unprecedented.

It was the only time given I've looked at the oil markets back to the 1970's that I felt that the price of oil might be manipulated or incorrect. The last seriously fishy data was back during the OPEC embargo. But thats a different story. The market movement around the Hurricanes looks skewed in many ways and its and obvious place where our storage data could have diverged from reality.
Given the nearness of a critical Presidential election the pressure to go with the last good numbers vs trying to figure out the mess left by the hurricanes is enormous. How are you going to report data you know is bad and might be alarming and might have a large political impact ?

Given my view of the market you can see why I'm highly suspicious of the current levels.
Nothing wrong with playing it safe back then but at some point you should have done a deep inventory review and not kept pushing bad data forward.

Well, the good thing about Monday is that we get to do this again.

I put 9.3 mbpd crude oil imports, because the price backed off last week a bit, so maybe the tanker captains will still be down at Padre.... per the above conversation. Because of the 14.1 mbpd refinery inputs, which is what it always is, and despite the addition of a bit of oil to the SPR, we will still probably have yet another inventory build.

In unleaded, I used a demand figure approaching what last week's was, and similar production, and we will be about even.

It will be interesting to see the distillate demand this week. We are getting into spring planting in some of the country, and we should see a bit of a seasonal increase, but the trucking industry is off, and we know that the grain prices fell off this week, so maybe that will be even weaker than it was. A modest build, just above roundoff error perhaps.

Have a pleasant week.

i've been quietly looking at a lot of same stuff too memmel. You bring up the same points I'm starting to see. None of the math works out and while I "thought" there might have been some manipulation going on last year during and after our gasoline crisis here in the SE, I'm pretty much convinced of it now. Think about how much more devastating to the markets an oil crisis would be on top of the current credit/banking problems. I am not a Conspiracy Theorist, but its evident we are in historically significant times and that can have an effect on the "spin" of general events, both corporately and politically.

I'm starting to think that inventories may have been at much more dangerous levels than was reported. I also thought from a personal standpoint the news from our area was what I'd call lacking on a national level. Was that engineered or just my perspective since I was living with the first real gasoline shortage since I was a young lad during the gas lines of the 70's?

I'm starting to believe they are letting the price for crude go back up to some more reasonable level due to global political problems if it remains too low, and on top of that, allowing the infrastructure and industry to remain somewhat intact for the near future when we will need more. If the price continues to remain low we all know what that means for when any perceived economic growth comes back.

We cant be the only ones who see what that can mean......??? Can We??