[url]
http://www.bloomberg.com/apps/news?pid= ... fer=energy[/url]

Hey, well, that explains a lot. I will have to go back into this thread to see how much oil we figured was out on the water someplace and 'unaccounted for", to see if we are as smart as the guy from JBC...

LOL Pup.

Lets see if they will spill the beans on how much traders have in land storage. My guess remains about 100 million barrels for a total probably closer to 200 million than 300million.

However we see more of the game developing over the last few weeks. First our new oil bank needs one of two conditions to hold or both.
1.) Steep contango to cover costs of oil storage.
2.) A steady increase in the price of oil of 2-3 dollars a month.

Looks like the second case may be developing.

And next this oil bank is not global but focused on the western nations in particular the US market where the players that created it have more clout in the futures market.
http://online.wsj.com/article/BT-CO-20090505-712768.html

Here we see the Saudi's cut prices to the US despite our incredible storage levels ???

Whats going on ???

Well as I said the oil bank has its oil positioned to serve the US and European markets not the world. By cutting prices heading west they push the prices down in the market where the bank is trying to operate and raise them where the bank has a hard time sending oil.

A bit of a squeeze going on. If the bank drains down storage then probably they will never be able to rebuild and it will dissipate.

Looks like the Saudi's can play hardball in this game also. They are not going to let the Banksters walk away with all the money.

I'd not be surprised in the least to see the banksters respond with a "surprise" drop in US inventories to keep the phase 2 game going now that contango is blown. However notice the Saudi report of price changes have probably come out after its to late to for the Bankers to refudge this weeks numbers

Which is probably the real intention of the Saudi's in the first place. Force the banksters to start reporting lower and lower inventory levels to keep their oil bank going.

What they can't do is report a steady increase in inventories forever since they are setting on a substantial amount of real oil that costs money to store regardless of the number of paper barrels floating around.

As always I could be wrong but so far I see a fascinating game developing.

Lets see if the Bankers can call in and retract their storage claims for this week if not given the moves of the Saudi's I could easily see prices retrace a bit until the banksters are finally forced to start reporting lower and lower inventory numbers to keep the oil bank alive.

In the real world beyond games it looks like the Banksters probably plan on reporting increasing and decreasing storage numbers to force prices up or down by the 4-5 dollars they need to cover costs but real storage levels should remain very constant its just once they force prices down for a bit they will buy forward in the futures market which sends prices back up. This wave would be on top of my expectations of a steady underlying increase in prices.
Now whats interesting is storage costs are fairly static per barrel but it becomes much easier to move the market but 4-5 dollars with a much higher price so the precentage change is smaller. This suggests that if I'm right about the oil bank that its favored operating price is at least 100 a barrel. A market maker can readily induce a short term 2-5% price change in a market as needed. You can play with the numbers here but I'd suggest that regardless the current prices are still low vs what a oil bank would need to get to volatility in the market to cover costs.

Let the games begin lets see if for example Japan and China start filling up tankers. That will also put even more pressure on our oil bank.

We're going to have a new price contest leader if this keeps up. You're right on the consistent 2-3 dollar increase per month.

http://www.bloomberg.com/apps/news?pid=20601072&sid=acLT9Neoc_R8&refer=energy

I just hate being away from a computer on Wednesdays.

If you take the beginning crude oil inventory, 374.7, and then add to it the imports, 69.3, and the domestic production, 38.37, and subtract out the 1.46 million that were sent to the SPR, you get a total available supply of 480.9 million barrels. Subtract out the 103.6 million that the government thinks were provided to refineries, and you should get something on the order of 377 million barrels. What the goverment actually got was 375 million, so I suppose the disappearance of 2 million barrels of oil is not terribly unusual, and might be some sort of correction or fudging, that the government occasionally does, but it did definitely throw my prediction off.... I will have to go back and see how common this is, but I think it is usually pretty unusual to be this far out of whack.

My unleaded and distillates calculations were way off because for whatever reason, demand was way down this week versus last. In the distillates this is not unusual, but in unleaded it is. The "balance" of 9.75 was way off from the 10.3 that I figured based on last year, and the distillates were way off like they have been.

The rest of the discrepancy was due to the refiner knob being turned all the way to "unleaded" this week....

Refinery utilization and inputs were both a lot higher than I thought this week, which probably makes sense in light of the seasonal increase in production that we talked about a few days ago, but it is happening a bit earlier than last year, more in line with a couple of years ago.... It will be interesting to see how high it gets by the end of the month. You know, the inventory of unleaded at only 214 is still not exceptionally high.....

So the analysts have whipped up on me again, but I am still scratching my anatomy trying to figure out what happened to all of that oil.....

Hi Pup I posted another one of my scenarios over on the oildrum.
http://www.theoildrum.com/node/5372#comment-500125

With this one I assume a 25 million barrel drawdown during the hurricanes that was literally papered over with paper barrels then I used a variant of your noted 2 million barrel difference
this week since then to get a paper barrel build of 80 million barrels.

If the system is being gamed it really seems like a way to introduced and initial overestimate of
25 million barrels is critical further assumptions can probably be varied to get reasonable outcomes consistent with the current price action.

A 25 million barrel lie is a whopper but one that could be told in the aftermath of the hurricanes on the eve of elections. Much much smaller distortions are then required to get us where we are today.

I agree with you that the logical inconsistency at the moment is the still low tanker rates coupled with a scenario of rising prices, that in combination with a reported X million barrels of oil being stored offshore.

The numbers definitely do not add up... we know that much too.

Your hypothesis is that there really not that quantity of oil on the surface. Unless someone tells us differently, the picture painted by the rest of the numbers, including the price, fits that hypothesis better than does the current inventory data.

Theoretically the price is now high enough to start selling the gobs of physical oil thats now in storage if you take the facts at face value and assume it exists. This would to some extent feed on itself driving down the price smartly. This is assuming also regardless of how much exists its not concentrated in the hands of a few key players. If it pops another 5-10 then your leaving way to much money on the table to continue to hold. So if its a market with quite a few players we should see some decent profit taking both in delivery of physical and in the futures market.
I'd assume at least a five dollar traceback to the 50-55 range. I'd expect this to happen for weeks if not months with 60-65 acting as a pretty tough barrier to break. Also on the OPEC side if the cuts are real we can expect more cheating. If it manages to touch 70 even more.
Its tough to imagine these prices given the facts oil should be trading at 20-30 but lets ignore the numbers and look at the futures market OPEC price points etc.

So a market setting effectively in the 50-65 range effectively forever with brief moves higher quickly squashed and large moves to the bottom generally trading at the bottom of the range with very slow inventory draw downs as price increases should draw more production is what we should see. Its 20 to high a barrel but what the heck run with what the market decides.
If it thinks 19 year high inventories and OPEC supposedly able at a moments notice to hit the world with 4mbd with cash flow and ever increasing problem is worth 50 a barrel all I can say is the current players in the oil market must also be heavily invested in Miami condos and think this is a good hedge.

How it managed to get this high taking the facts at face value I can't even figure out but if they are true a crash back to 30 has to be highly probable and once OPEC ramps they can't pull it down nearly as fast. And of course storage has to be running out and how many ships do you really want sitting in the GOM during hurricane season ? I can barely come up with a plausible scenario trying to take the facts at face value but I did my best. I mean with idiots like this with this much money to throw away how on earth can our economy crash ?
Sorry I'm trying hard to put a strait face on this "prediction"

Regardless the way the market and physical oil moves over the next two months should be very telling about the real underlying fundamental situation. And I think the above is a reasonable attempt to try and believe everything we are told and put together a price projection.

Here is a bit of a spreadsheet this morning, which features the calculated crude oil balance every week since the beginning of the year.

I could not find a weekly summary of inputs into the SPR.... however, we know that some quantity got in there....

The "gap" between supply and demand since February 1 has averaged totalled about 13 million barrels. SPR has increased during that time from 698 million to 718 million....which is 20 .4 million barrels....we can get that from the weekly balance sheets...

So, this means that there is a discrepancy of roughly 6 million barrels since February 9.... that were put into the SPR but not accounted for in the weekly totals.

No wonder I've been having trouble calculating the crude oil total every week. Last week, the bulge was abnormally high, so I was off a couple million....

How that fits with memmel's "oil bank" theory deserves a little consideration, .. but it might be helpful to know that at least the oil did not vanish completely. I suppose the EIA will have to fudge the data at some point to correct for this....



So here's the forecast, using the above info to fudge the SPR portion of the calculation: Refinery utilization of 86%, increasing seasonally as we would expect: Demand for unleaded about 2% less than the equivalent last year, demand for distillates about 10% less than last year, an extra SPR fudge factor to reduce the surface inventory, and product ratios at 60 and 27...

The result should be: about even in unleaded, a bit of a build in distillates, and a small build in crude oil .....

More fun.

Qué? Weekly U.S. Crude Oil Ending Stocks SPR (Thousand Barrels)



They're piling it on quite thick lately.

Khebab had his excellent 2006 piece on the EIA Revision Pattern for production; wonder what the data for stocks long term looks like.

I read a few things on the SPR website that have now seemed to disappear.

http://www.spr.doe.gov/reports/SSPs/ssp.htm

Most was related to the new web based sales support which now seems operational but is behind a registration wall. I got the impression that the program effectively allowed you to store commercial oil in the SPR facilities. This was sort of implicit in the description of the new web based trading platform but now its page only says emergency sales.

The changes are here
PRICE COMPETITIVE SALE OF STRATEGIC PETROLEUM RESERVE PETROLEUM
http://www.spr.doe.gov/reports/SSPs/PART625.html

Now I could be wrong and in reading it just gave me the impression that the SSP ( Standard Sales Provisions) could potentially be used to open the SPR for storage of oil for commercial transactions. It just did not "smell" right

Maybe others can review the changes and see if they come to the same conclusion.
Contracts agianst commercial oil storage in the SPR would certainly change the game and it would support my oil bank thesis but like I said all I see is that the new system opens up the possibility even for me its not 100% clear what the new rules are as far as sales and purchases vs the original mission of the SPR for emergency use only.

As usual you are a better sleuth than me. I evidently missed i


I will look at this some... The Clinton Administration attitude was that the SPR could and should be used occasionally to smooth out peaks and valleys in the market... releasing oil when it got tight to keep the price low... and purchasing oil when the price is low, like it is right now, to give some stability on the low end. We all know though that this resulted in a terrible situation in that it makes any sort of long-term business forecasting practially impossible because the rules are apt to change the next time the so-called free marketers are elected.

Interesting write-up in TOD:
http://europe.theoildrum.com/node/5384

(from the article in OF2's post)...

It is quite plausible that if all of that oil really is out there, and the contango situation does go away, we are probably looking at $25 oil...

But the question in my mind is: with $2.5T pumped into the economy in the last 9 months by the fed and the european banks... and if you had some of that money... why would you not want to park it in some way that is not vulnerable to currency collapse.

I think the contango will continue as long as governments continue to prop up the economy by writing hot checks... by deep-pocket people taking refuge in some physical means to store wealth.