Imports took a plunge last week. Unless that's a one-week blip, maybe refiners are starting to buy fewer imports to help bring down those stocks?

yes, indeed, the frequent viewers of this thread well know that the import situation was the main driver this week ... and also, note that refinery utilization is back down to 80%... so the big decline in inventory comes despite greatly lower refinery inputs than last week...I thought that the refinery utilization would increase throughout may, and end up at something like 88% around memorial day, like it should based on the history, but perhaps this is not the case....

Furthermore, the "gap" between calculated crude oil balance and actual crude oil inventory is up to 5 million barrels this week, if my little spreadsheet is correct.

So there is something funny going on.

The demand, as you know, is still way off for distillates, and I still do not think the full magnitude of the current economic situation has been felt on distillates....there is some more to go on the downside.

Unleaded is still pretty strong though....so it would not surprise me terribly to see unleaded imports get up to around the normal 1.1-1.4 in the next few weeks, and the refinery utilization still stay low, because we are going to need almost as much gas this summer as we did last, if the current trends continue.

It will be interesting to see the market reaction. This kind of decline in crude oil is actually quite unusual, when weather conditions are normal, and it will be interesting to see if the traders shrug this off, because there is so much oil around, or get worried that we are about to see a change in the system somewhere.

Shocked I tell you shocked.

Lets all take a moment of silence and mourn for the 4.7 million paper barrels that went to paper barrel heaven this week. I fear many of their brethren will meet the same horrendous fate in the coming months.

Or as OF2 pointed out refiners simply curtailed imports due to the fact they have simply run out of room to store the stuff, but I guess that wouldn't be as fun as a "paper barrel" conspiracy.

Before we call anything a trend I think we should wait a few more weeks for more data.

Note the change: the original report said refinery utilization rate of around 80%, it's since been corrected to 83.7%.

Given tanker rates are at there lowest level in decades I don't see any reason for the running out of room argument. 110 single hull super tankers are due for the scrap heap so I'm sure you could work out a killer deal for floating storage right now.

In one of my longer posts I mentioned potentially 400 million barrels in the hands of traders what I did not say is I see no intrinsic reason we don't have enough single hull tankers to provide at least 200 million barrels of storage capacity is someone thinks its worth storing oil.
We already have seen credible reports of at least 40-80 million barrels temporarily in floating storage which having a dramatic impact on the tanker fleet. We have oil tankers coming out the wazoo now with the situation only going to get worse.

300 million barrels in floating storage is probably doable right now.
If anything at the moment floating storage is probably cheaper than storing on land.
So why offload it into more expensive less mobile storage ?

This concept of "running out of storage" is a internet myth.

Well what do we know.

http://globaleconomicanalysis.blogspot.com/2009/05/iraq-objects-to-floating-tankers-may.html



So this concept that prices will drop because we have run out of storage on land looks even less probable. With floating storage you always have the option to move the crude around.

Now obviously I don't think crude storage is near as high as whats claimed however regardless of the storage levels once you include storing oil in tankers like I'd suggest if its financially worth while we probably could store a lot more oil in tankers. Only if tankers rates start rebounding because of demand for storage should we even begin to consider a practical limit to storage levels.

In general you see this sort of hoarding behavior in markets when outright shortages are expected. So we must continue to wonder what the real truth is.
But I'd not be surprised in the least to see above ground storage eventually increase by 400 million barrels globally over the next several years if not more.

I just don't believe that if the Chinese are now getting serious about storage that a collapse in prices is going to be the result. We shall see but so far overall they have been playing the current situation the best of all the major countries. Stocking up on real resources and focusing on growing their local economy.

In any case the expectation of a sudden drop in prices because storage is literally full looks even less likely with reports like these. Meanwhile the real levels in storage become ever more murky.

I think the storage issue is something to attempt to get a grasp on but I agree with memmel about its importance. With global oil usage at such high rates, even with recession, the storage issue wont be that big a driver to price due to its fleeting nature. I foresee a short period of time where the storage could help mask the production declines and I think thats how it will play out.

Hoarding? How about, "Lots of oil sitting (or floating) around that can't find buyers.

If I owned a store and sales were slow, and inventory in my storage room started piling up, you would call that "hoarding." No, that's not "hoarding," that's just excess inventory.

I suppose all those new, unsold cars piling up at the Port of Los Angeles are really an example of car dealers "hoarding" cars in expectation of shortages.

As far as masking production declines I agree in a sense what it does is delay the time when absolute decline finally translates into shortages. However a hoard only serves to eliminate outright shortages at a price. The hoarder is always buying forward in the market. He can for the most part assure availability at some price but he is competing with his own customers in the future. I think that you have seen this puts a strong floor under prices.

Then oil should be 10 dollars a barrel or to as the saying goes to cheap to meter.
And why on earth pay storage fees on it ? In the case of oil just leave it in the ground and pump it when you need it.

The number of logical mistakes in your post are surprising. Now if the current price is just because speculators have somehow managed to cause a price runup on one of the worlds most basic commodities then to be honest I find that even scarier. If we really do live in a world where speculators are so powerful that they can almost double the price of oil in six months when they cant find buyers I'd think hard about where I put smiley faces.

The main reason why oil is not $10 or $20 a barrel now whereas the last time we had a glut of oil on the market 7-9 years ago it *did* reach $10 or $20 is because 7-9 years ago the US dollar index was at 100-120 whereas now it's only at 83.

Hmm

83/120.0 =69%

56*.69 = 38

And one could readily assume that if the price of oil falls significantly it help the US trade balance and has a secondary strengthening effect.

This suggest that oil right now is 30% overvalued. I've estimated the probably short term peak price in the next two months based on my own market analysis to be in the
60-65 price range this is based on a number of factors including technical analysis.

If I'm right and it hits 65 and the dollar continues to trade in the 80-90 range then oil is significantly overvalued however as with declining oil prices rising oil prices and the value of the dollar are not independent variables since we import so much oil thus rising oil prices then to put pressure on the value of the dollar itself leading to a weakening effect just as falling oil prices serve to strengthen the dollar.


Thus if oil does reach 65 we can expect that the dollar will move towards the lower end of its trading range.


Now this is with OPEC supposedly withholding 4mbd of production one would expect if oil traded at its correct value now of 38 a barrel then eventually OPEC members have no choice but to give up and start pumping this should drive the price of oil lower and of course as oil gets cheaper the global economy gets a boost America gets a boost and as I said before the dollar will strengthen vs other currencies.

Once could easily argue that the long term trading range is 20-30 thats quite sensible with 10-20 not out of the question by any means. 30-40 is getting a bit far fetched.

And of course given the situation at the minimum the price of oil should overshoot on the low side before stabilizing somewhat higher esp given that once oil approaches its correct price people storing will begin to dump oil probably forcing OPEC to dump etc. Again seeing oil trade in the 10-20 range at least for say 6-12 months before slowly rising makes total sense. And it should have a hard time rising back.


I've got no problem with what people are claiming is the truth and I've got no problem running the scenario for the supposed truth. However for me at least its increasingly obvious that the puported truth is not matching reality.

The current price of oil is way way to high and to the point that even assuming speculation in the market its impossible to justify. Given my above scenario I don't see a weak dollar as a explanation.

If you go back to 2003 for example when the dollar had similar valuation you had a oil price of around 27 a barrel exactly inline with my scenario !

I've got no problem with this solution if you will it just that if you run it the current oil price is ridiculous it makes no sense and the market should collapse.

It may well collapse but the only reason I'm willing to seriously question the assumption that the world is swimming in oil is that the market is not only not collapsing but any reasonable analysis of the market shows that the price of oil is generally expected to increase. What the market is saying is completely at odds with the claims made about storage levels and even daily production.

If I believe the market then I have no choice but to seriously question the storage claims and in questioning them I see no intrinsic reason why they cannot be inflated and see plenty of reasons for inflating them. Eventually of course if I'm right we should see claimed US oil storage levels begin to fall steadily. And further more I expect OPEC could well announce and additional 2mbd cut at its next meeting.

My guess is OPEC will announce a 2mbd and we will see US oil storage claims begin to fall in the coming weeks. And next that the price of oil should slowly climb toward 70. But I don't see a stable high price for oil either we have plenty or we don't its a binary equation there is no medium value. Either its plentiful or its not.
If not then there is no upper bound on the price.

We will see one thing I can say for sure is the current price has more than surpassed what it should be in fact if storage levels don't start falling soon its even to high for my pessimistic view. On the very short term I'd expect to see a bit of price contraction with 50 as a bottom price then storage levels fall and the price start increasing or at least a pause in the increase until storage levels start falling.

I estimate at least 100 million excess barrels are for real I've never said storage levels are not high this suggests that the oil price should at least halt its upward advance for a bit.

Now maybe the price is unstable and for unknown reasons simple market momentum has cause it to overshoot its fundamental price. Fine then oil should fall and continue fall under 50 and towards 30 and have a hard time returning.

Either way its well past time for the price to collapse as always markets can go longer than most anticipate for this we just have to wait and see. What I don't see is that the current situation is stable either the oil storage claims are correct which means daily production is ample and the price will go down or they are they are inflated and the price of oil will increase at a ever faster rate. What can't happen forever is ever rising storage levels and ever rising oil prices.

The reason for that, of course, is because in 2003 oil had recently been as low as $20 in 2001 and obviously it wasn't going to rise to $55 overnight. Plus, in 2003 the economy was still in a bit of a lag from the recession a year or two earlier and higher prices weren't justified yet. It takes a while for "price momentum" (for lack of a better term) to build up. Back then the price had recently been at a low period and it took some time to go back up. Now you have the opposite: The price had recently been sky-high and it takes a while for all those contangos in the forward months to come down.

As long as the price remains relatively high (due to the relatively low dollar) given the current economic conditions, it will do nothing but encourage excess production. It will also discourage a ramp-up in demand. So until *something* drastic happens, you are going to have sky-high inventories. Either the price has to crash (at least for a while) to shut down some excess production, and/or there has to be a dramatic uptick in demand.