Interesting news.

http://www.gulfnews.com/business/Oil_and_Gas/10354269.html



Lets see if the cut for lighter grades actually happens. I don't watch this like I should but I'll try and keep and eye out for any cut. Obviously I doubt it will happen but you never know.

Ah, Monday...

I paid $2.19 for some regular unleaded today, diesel was actually a bit more expensive, and as I sat there shivering in a cold rain, i said to myself "why would anyone want to run a refinery right now?".....

The operations are enormously complicated from an engineering standpoint, by their very nature they are a marginally controlled explosion in progress, and made out of a continuously corroding metal... which is undergoing big swings in temperature all the time, expanding and contracting...

On top of that you have to have a reasonably competent labor force, which you have to make a big investment in to train, and you really do not want to fire a lot of them because you know how long it took to get them to the point were they worked productively and not blow the place up....

In order to accomplish all of the repairs you had to do in the last four years, trying to squeeze that last drop out of these things using the terrible crude oil your buyers were sending you, you had to go into the credit markets and borrow a lot of money to do some debottlenecking.... and at this point all of the business planning you used to justify this stuff is out the window, since you did not think the markets for jet fuel and diesel would go the way they did....

Then, you have the local EPA office, the neighbors, and potentially the newspapers sitting outside your front gate, just waiting for the moment you have to flare off some extra tailgas because one of the dozen electric valves on this thing screwed up at some point and stuck open or shut....

Then, you have the boss, or some pesky energy analyst, calling you up from Europe or Wall Street or whatever Ivory Tower they go to work in, wondering why your feedstock efficiency was off last month, since you could not convert it in your reactor in the ratio that the equipment was designed for, because the market for diesel is so screwed up....

On top of that, it's Monday, and not only did the Cowboys lose yesterday, but Texas A and M looked terrible on Saturday. You don't really care about the Texans....

So, as you get up before dawn, to take that long drive into your refinery, you have to ask yourself whether you should just say "screw it" and drive right past the front gate, and keep going, and head down to Padre for a few days.....or maybe South Florida....At this point the average Subway franchise is more profitable than the average oil refinery......makes you wonder why you go to the trouble.

You know, there's only one number on here I do not feel too good about....

Seriously, it's the crude oil imports that consistently give us a hard time... I put down 9.5 this week, which is about the three-week average, but we are due for a low week, if it's low, the crude oil will decrease, if it's high, the crude oil will increase....

We've been pretty close on demand, and I think the refinery utilization will be under 84%.... one more plant manager and/or unit operators, stretched out on one more beach somewhere around the Gulf Coast.....

The refinery margins have actually gotten a little better since we last looked at them a couple of months ago, $10 per barrel is almost enough so that the Valeros and Tesoros of the world are close to profitable enough to marginally stay in business....

With three quarters of the year gone, I am 38.33% vs. the analysts, which is exactly as accurate as a random analyst would be.......

Ha, good stuff.
Getting the same feeling in the drilling for n. gas biz but the futures are a bit higher right now so maybe it won't all go to crap this winter.

Just as a sort of aside I don't want to hog the thread but posted my theory of everything dealing with oil production over at the oildrum.

http://europe.theoildrum.com/node/5836#comment-547699

If you wish to read it then you will at least figure out why I'm now super interested in weekly production

And hopefully it can at least help you understand why I say the things I say.

I don't want to get into a big discussion on the esoteric's of modeling the global economy and oil production on a weekly basis but if you wish to read it then you know I'm making predictions based on this model.

What is important is if the model is even reasonably correct we will be able to watch our future unfold week by week on this thread. Pup55 is given the model watching as history unfolds.

Of course our mysterious oil bank is playing monkey wrenches with our "well oiled" economic engine or very squeaky one if I'm right So its not a simple problem.

http://www.reuters.com/article/marketsNews/idUSN0639067620091006


If distillates actually dropped by that much, it probably means that the refinery utilization went way down....and if the crude oil actually dropped by .254 in the face of lower refinery utilization, it means the imports must have been in maybe the 8.8-9 region....

The market is starting to move actively based on the API report on tuesday. It would be funny if the EIA report is in big disagreement with it...

I hate it when the analysts whip up on me, but there is nothing on here that is particularly shocking except for one thing, which is the unleaded production...

As you know, I've been tracking the ratio of unleaded to crude oil, and the ratio of distillates to crude oil, which should give us an idea of the position of the "knob" that the refinery system is adjusted to....We did some statistics awhile back... historically this number fluctuates between .58 and .62.... In the period between 2004 and August 2008 it averaged .58, and since then has averaged closer to .60.....The .644 this week, though, is a 2.3-sigma event, far enough to suggest that something is fishy....

Also, the API distillate number that caused all of the ruckus yesterday was waaaaay off compared to EIA number......as was the unleaded.....

So there are a couple of inconsistencies to think about....

The refinery utilization and crude oil inputs were just about flat from last week....
the unleaded demand was a couple of tenths off of what we predicted, the imports were 9.1 which was lower than I had, but makes up for a couple of strong weeks....

More fun next week. I guess I am going to have to start tracking the API numbers more carefully, if they continue to rile up the markets....

You know, for a period of about six months, the mastercard gasoline purchase number was being used as sort of a pre-indicator of what the WPSR was going to do, but that sort of died out... Too many more weeks like this one, and people are going to start taking the API data with a grain of salt too.....

I'd argue that credit card purchase stats will increasingly reflect the number of people who have maxed out their cards and been forced to move to cash.

In general the number of people with revolving credit access is shrinking steadily therefore stats that use it as a metric for demand will be understated. One has to guess that charge off rates are not even a perfect metric as banks are probably slow to realize credit card losses and bankruptcies interfere.
The trend if you can find the data should have CC purchases falling but demand for basics such as food and gasoline remaining relatively flat with vacancies rising in rental units. This is the growing pool of unemployed living with relatives and working odd jobs and or part time.

Not much to say on the market unless we don't see the typical smash and rise.

Edit:
And of course CR has the perfect link on the credit situation what we don't really know is how much gasoline and even diesel is bought for cash.
http://www.calculatedriskblog.com/2009/10/consumer-credit-declines-sharply-in.html
Like we need the data to get fuzzier.

More news.

http://www.philly.com/inquirer/front_page/20091007_Sunoco_idling_Eagle_Point_refinery__slashing_dividend_in_half.html

This is 145,000 barrel a day refinery.

This is a good article since it shows at least one player throwing in the towel and going for utlization rates via contraction I suspect more of this is going to happen over the next several months.

So we should finally start to see overall capacity drop and utilization rates creep back up into the 90% range.

As far the glut in distillates and gasoline in part this could probably be explained by building up storage before the refineries are shut in and you take the hit shutting them down.

If so we can then expect overall storage levels for refined products to finally start to show a steady decrease even as refinery utilization increases as refining capacity finally starts to contract.
Of course depending on how each refinery is connected its not clear what happens with crude storage on site. Maybe the tanks are useful maybe not its case by case but overall its seems that in general the onside storage will be drained down and mothballed.

Whats really interesting of course obviously since this refinery and I'm sure others are heading for shutdown the build in crude is hard to understand as it seems they would plan to have all local crude storage drained right before shutdown. But again its case by case and we will just have to watch.

Overall however I'd argue this puts the system in a more just in time mode with lower storage levels simply because of the lack of refineries.

Hmm Mikes crazy tinfoil hat oilbank going mainstream ?

http://www.chron.com/disp/story.mpl/business/6655777.html



Now where exactly did all those paper barrels go ?

Interesting that they flatly admit they did not calculate the non refinery storage exactly yet through the great glut storage outside of refineries was the big source of all that "oil".

The article is a bit misleading because this storage is actually voluntarily reported.

Of course given who the players are in the Oil Bank I can pretty much bet that publicly this will amount to nothing. However its good to see some people finally starting to wake up.
I suspect that and attempt to do a real audit of our oil inventories is the basis of this action and many may wonder at the result but not me.

And I'm still trying to figure out where we are really the last several weeks really scrambled the data but near as I can guess oil inventories outside of whatever the oil bank really controls are overstated by 10 million barrels or less. I assign 30 million barrels to the oil bank with 10 million stored on the gulf coast and 20 million at Cushing.

From here:

http://tonto.eia.doe.gov/oog/info/twip/twip_crude.html

Storage is at 337
so 337 - 30 = 307 last year this time it was at 302.6 with 14.4 at cushing or 287 to compare

If its 10 million overstated this
307 - 10 = 297.

Last time oil was at this inventory was around this number was Sep last year and prices where around 100 dollars. External factors such as hurricanes make this comparison suspect.
Last time it was at 70 on the upside inventory was July 2007 with inventory around 350 total.
So both approaches indicate oil should be under priced esp discounting some oil controlled by traders.


If this is even halfway correct there is significant upwards pressure on prices at the moment and a lot more within say 4-6 weeks.

No telling what going to happen one can guess the traders will steadily unload stocks in advance of any investigation but they might also force the EIA to make some major corrections. A bit of punishment for sticking their nose where it does not belong.

So lots of interesting things may happen or may not but in general its volatility with a increasingly stronger upward bias.

Is everything legit now I still don't think so however I think we are approaching the point where errors can no longer be entirely hidden and exact inventory numbers become more important.

However I'd not be surprised in the least to see gas lines in the US with everything still reported well above the five year range the way things are going

If I had a dime for every time in this thread memmel said something like, "Something interesting should happen in the next few weeks," I'd be rich.

^
Like this, posted on July 15. The price of oil has gone just about nowhere since mid-July. So maybe - just maybe - there is just about nothing to signal the price of oil to do anything, including an overstatement of inventories. No? How many times does one need to say, "Something big has to happen in the next several weeks if I'm right," only to have *nothing* big happen during that time, before one starts to wonder if maybe they are wrong?

^looks like all those paper barrels turned out to be made of good old us steel.

Record inventories ans gas lines!!?!? oooooook.



Its a conspiracy!

Umm I believe if you look at the record that some oil was imported over this time period offsetting declines. Its allowed us to kick the can down the road for a few months. But your talking about say maybe 10 or so VLCC's that where unloading stored oil that had been pumped months before.
If so its a temporary situation. And of course that would be my oil bank rolling some oil.
If they don't replace it i.e they wind down oil storage then you get a bit more time but not much.
If they do replace then their extra demand will hit down the road in exchange for having tempered prices over the short term. Regardless of what they do with a futures market they make money with whatever move they make as long as they control enough physical oil to influence the markets.

And of course if this is true and the prices have remained stable simply because of the draining of additional stored barrels from offshore the real amount of oil coming from daily production is less and the eventual decline steeper once the stored oil is exhausted.

Only if OPEC or more correctly Saudi Arabia is doing a good job of managing the flow of oil to ensure price remain bounded are we not in this sort of situation. Given storage levels I can't see that Saudi Arabia has acted to boost production thus any excess oil probably came from offshore storage.

I think its safe to say that if Saudi Arabia does boost production it will only be once oil storage levels have officially fallen into the middle of the five year range and this Oil Bank has been forced to sell its oil and dissipate.

Nothing wrong yet in my opinion with my assumptions I explained the simplest one which was a steady decline in weekly inventory this has not happened its been more erratic not quite a steady downward trend.

But if its stored oil all it does as time shift the situation a cartel buying up current production for future delivery at a higher price does nothing to really change the longer term trend and at most can shift things by a few months.

I certainly believe that during the rapid crash back in 2008 a temporary oil glut happened and this oil was stored. I question the magnitude and the length of the glut but that does not mean that inventories are not high and that some signifcant quantity of oil was not stored offshore in floating tankers.

However I see no reason for it to be as large as claimed and around 100-150 million barrels is sufficient to fit the price action. Deciding to unload even up to 30 million barrels of oil at certain times does not change the situation it simply shifts when the price spike occurs a bit later and makes it sharper. Again with the futures market anyone playing games with significant amounts of oil knows exactly what they are doing and can take positions that are highly profitable regardless of when and how they decide to dispose of their stored oil.

In fact the decision to offload short term at a lower profit and position yourself correctly in the futures markets to take advantage of the coming spike once your offloaded is probably the most profitable esp if you also plan to grow your storage at that date and have set in place delivery contracts hedged at the current "low" price.

As long as you have a LOT of money and are convinced no flood of oil is around the corner you can readily play with the oil market over a timespan of months to generate immense profits.

I'll repeat once we see a steady decline of 2 to 4 million barrels of storage on a weekly basis then the time of accounting is nigh. It can be shifted by a few months but thats about it and it won't change the overall eventual price change.

Lets say for example oil goes to say 100 a barrel by December or higher does it matter that the curve was briefly shifted in time ?

Until you see steadily falling prices and a steady increase in imports we can only assume the oil bank is playing games setting up its position to maximize profits.

I've got no idea what scenarios they have run but I'm sure they hit on the one that would maximize their profits. Its sensible that this would be one that sort of lulled the futures markets to flatten at a price that also provided them a handsome profit for oil they had bought for 30 a barrel.

I have to think that if the above is true that the Saudi's won't be all that ready to flood the world with oil when the oil bank springs it trap and oil shoots over 100. They are probably going to wait and see what happens and enjoy the profits despite their claims of stability. And of course if they do try and flood they know damned well that the oil bank will suck all the extra oil up to reload itself if prices fall so you have a natural forced partnership with the oil bank in a position to skim profits no matter what the Saudi's do.

In fact the only move the Saudi's can do to escape is to flood the world with cheap oil till the oil bank is smashed and forced to dissipate. This could well see oil fall back below 30.
Assuming of course they can which is another issue.

In any case no matter how you slice and dice it if my concepts are even close to correct then things can be shifted by a few months at most before the situation heats up and the more they are shifted the hotter the final situation becomes.

Let's see if we can do a little better this week.

85% refinery utilization
Crude oil imports of 9.3.... this variability continues to bug us. Keep in mind it's the week before the futures expire again.....
Demand: about what it was last year at this time. The harvest is in full force, they had some nice harvest videos during the Iowa-Michigan game on Saturday, in case you missed it...

I don't believe for a minute that the refiners will repeat the 2.3-sigma event that we saw a couple of weeks ago....and produce that much unleaded again.... it ought to be more like 9.1 mbpd.....

So if this happens, we will see minor draws in the products, and a bit of a draw in crude oil, but it all comes down to imports again.

http://www.heatingoil.com/blog/refineries-shut-down-cutting-inventories-and-jobs-1013/

Well, well....

Crude Supplies



http://www.bloomberg.com/apps/news?pid=20601072&sid=aHfl084Brabo