This is the fourth thread of the series.

The original 100 page thread, which ran from April of '05 to about April of '07, was read at the rate of 87 views per post

The second thread, the '07-08 thread, had 1480 posts and 144,500 views, nearly 100 views per post.

The third thread, at about 62 pages, from April '08 until Jan/Feb '09, had 948 posts and 83,156 views, a rate of about 87 views per post, so the readership of this thread has been quite consistent for nearly four years now. This thread continues to be among the most frequently watched on PO.com, which makes me particularly proud to continue to do it, despite the fact that the analysts whip up on me from time to time, and I have to get a good laugh once in awhile when I do a typo.



I think we have learned a lot from looking at this inventory report every week, and I have to say, I was particularly proud of accurately calling the shortage situation last fall about a week before it happened, which means that our "doom-o-meter" was indeed calibrated correctly, and we can actually get a little advanced warning of imminent issues, which was one of the original premises of the thread when we started it up so long ago.

So, thanks again viewers, for making PO.com what it is for so many people: a two-way conduit of original content, discussion, and information distribution that is so important as we face one of the critical issues of the modern era.

Link to 2008 Reports Thread

[edit- stickied and added link to 2008 reports - markl]

We were going to look at the natural gas this week because it has been so cold up around Lacrosse, just to see what the situation was. We knew for quite awhile that there would be no real issues with natural gas supply this year, and despite a pretty big drawdown of 186 bcf, the supply situation is dead on last year's and right in the middle of the five year average.



Here are some natural gas stats: This is for the total drawdown for the eight week period starting February 1, for the last 15 years:


I think last year we figured out that the system gets into trouble at about 750 bcf.

A drawdown similar to the 2007 size, of 1060 bcf (which would make the supply about 1300 bcf), is a 1.99 sigma event, meaning that the probability of this occurring is only about 5%, and the probability of a drawdown sufficiently large to get below the MOL is out farther than the ninth decimal place (greater than a 10 standard deviation event).

These probabilities do not even include the fact that the auto industry in north america is basically shut down right now, and all of that industrial electricity demand is way off.

So, crank up the thermostat, if you have one, because unless we get into a science-fictionesque cold spell, we are going to be fine on supplies for the foreseeable future, possibly up to and including next winter as well.

Pup, I don't that it'll make a dent in your prediction for the coming week, but Flying J's refinery in Bakersfield, CA, with a capacity of 70K BBL/day is shut down due to Flying J's bankruptcy.

http://www.sltrib.com/business/ci_11584070

Chief

Well it is out in the second decimal place, but I appreciate the heads-up on this and any other news that comes out of this industry.

The Flying J case is especially interesting: They were doing what they do best, which is run truck stops, when somebody got the bright idea that they should do vertical integration, and buy up some refinery capacity. I suppose the theory is, that if you buy X amount of unleaded and diesel every month, it made sense to own your own refinery, except for the minor fact that there are periods of time (like in the late 90's) when no one in this business, including the giant integrated oil companies, makes squat on their refining.

The rest, as they say, is history. In retrospect there might have been more constructive alternative strategies, particularly since the retail truck stop business is quite different than the basic material conversion business, which is what the refining business is, and you have to say they may have underestimated the amount of money they were going to have to invest in the Bakersfield operation in order to keep the EPA from shutting them down. They might have gotten a clue from the fact that the Shell Oil Company did not have confidence in their own ability to run this place, but at the time this transaction took place, which was early in 2005 Shell was under some pressure because of the whole reserves thing, which might have made both parties do what they would not ordinarily have done.

The retail truck stop business is the pits right now too, incidentally. Two of the other big players in this business, Petro and TA merged in 2007 to eliminate some competition and some overhead. Since this work of managerial brilliance, the share price of TA has gone from 45 to a little over 2. As of February 1, the enterprise value of this company was negative, but they were marginally profitable in the fourth quarter. The company has 250 million in short-term debt that they need to refinance in the current screwed up credit market, but the real problem is that they have not been able to take advantage of their bigger company to get any pricing benefit in the marketplace, because the trucking business is also consolidating.

So, some truck stops are going to shut down. That's business. The remaining might be able to price a little more aggressively because they will be the only truckstops on some long stretch of I-10 or whatever, and will survive.

Funny business.

So I wonder if that refinery in Bakersfield simply gets turned off and taken offline? How long can a refinery remain idle before it costs gobs of money to restart it?
Also of note, the Yorktown refinery owned by WNR is for sale. I somehow doubt anyone will want to buy it. Oh wait, maybe LUKOIL. Never mind, oil's at 40 something and they are hurting just like everyone else. They'll have to settle for simple retail in this country for the time being.
Have you been following the threatened strike by UAL against the refiners? Valero just replied with "Oh well, I guess we'll just shut a couple of refineries down" and that's that. I figured only a horse's ass would strike at this time because it would almost constitute a gift to the refiners. And the unions were offered 2.5% pay raises and that wasn't enough. Of course, I don't know the details, but to me a 2.5% pay raise sure beats not having a job. And the deadline for the strike (Sat night) has come and gone and look: no strike. Amazing.

Chief

Here's a link on the strike:
http://www.marketwatch.com/news/story/r ... teid=yhoof

Also, in my above post I was acronymically challenged. The threatened strike was by United Steelworkers, not an airline:-)

Chief

I am going to go out on a limb here and figure a build in both crude oil and unleaded, and about even in distillates.

Until somebody tells me differently, the refinery utilization will continue to get lower and lower until the end of March, when it is traditionally at its low point anyway. Also, at its current production ratio, the refiners are using less crude oil than they ought to on the basis of their NPC. There is still quite a bit of oil coming in via imports, but even at that, we are looking at a pretty big build in crude oil, and at 340 million barrels or so, there is a lot of oil around.

In unleaded, the numbers last week were so far off as to make me think there was one of the famous EIA "inventory adjustments" that happens from time to time. The number we calculate for "balance" was way off--maybe by about 3 million barrels or .4 mbpd. This being the case, it is hard to figure out exactly what to do this week, except refer to the year-ago figures and estimate about that, and see what happens. At these low demand rates, there should be a further build in inventory. Inexplicably, we are still importing over 1 mbpd of unleaded despite the fact that the domestic refiners are only running at 82%. What that says is one of the big multinationals' operating costs are low compared to the US, and shipping is nothing, so it is better to run the overseas refiner than it is to run the domestic one.

In these big continuous process industries, there is a calculation you can do at some point, when you make a decision whether to shut down entire refineries rather than run at a lower rate and/or shut down one of the several units in the plant. Per Chief's remarks above, we are probably already getting to that point in a lot of these cases. We know that VLO and TSO are not profitable at the current margins.

The reaction of the unions to this is interesting: Here we are in a situation where there is plenty of product around plus a lot of excess capacity in the industry at exactly the time that the contracts are up for negotiation. If the union does go out, the company negotiators will be hard pressed to keep a straight face, since the unions would be doing them a big favor. A 90 day shutdown of half of the refining capacity in the country would send prices back to the point of profitability, plus draw down the excess inventory. So, for the company, it's a no brainer. Let them go. Encourage them to go.

I hope that the frequent viewers of PO.com can see that the events of the next 90 days are going to have serious repercussions on the pricing and refinery situation about 2 years from now, because the seeds of the next big fuel shortage/crisis are being sown right now, as these guys shut off the lights and go fishing rather than run unprofitably.

Annoying Triple Post

annoying triple post

The United Steel Workers' Union has decided not to kill themselves after all. The strike has been called off.
http://biz.yahoo.com/rb/090203/business ... .html?.v=3

Chief

Bloomberg



Commodity Technical Analysis



[url=http://www.marketwatch.com/news/story/oil-rises-two-week-low-opec/story.aspx?guid={48BFF0AF-9683-4E63-A606-DE5443080918}&dist=msr_28]market watch[/url]





Reuters

Well, the API report is plausible if the imports are high enough.

Other than that, it looks like some of the analysts are tuning into PO.com again.

Looks like imports were high enough!

Just a little note on something that might have contributed to the extra inventory builds this week.

According to this, US weekly crude oil production bumped up by ~200K bpd. It's the highest it's been since the week of 3/30/07. That's about an extra 1.4 million bbl over the course of the week.

Well the analysts got the better of me this week, and the API report has proved to be pretty accurate in crude oil. OF2 is correct in that we are back over 5 mbpd consistently for the first time in a long time, and also, the 10.0 mbpd imports coming in from our starving neighbor Mexico was enough to offset the little bit of a refinery utilization increase we saw.

In Unleaded, the build was a little lower than we thought because the "demand" as calculated is tending to be actually a little higher even than it was last year. Last year for the equivalent week, the balance was about 9.3, this week all the way up to 9.5. Also, there was a small decline in imports of finished goods this week which helped reduce the inventory build. This has yet to show up in "products supplied" as defined by the EIA, however. This may be an artifact of the importation or production of blending components which provides a "gap" between refinery utilization and actual unleaded production, which we have discussed at length in the past.

In distillates, we were within .7, which is just about roundoff error in this calculation. The import reduction, above, is enough to have thrown our little calculation off that much.

So, with the exception of the high crude oil imports, the trends of the current past few weeks are still in play.

Yesterday's natural gas draw of -195 bcf was actually rather impressive.... it was the 37th largest draw since 1994. On average there is only one or maybe two drawdowns a year of this size. Most occur in the late January, Early February time frame, as we would expect.

The record drawdown of 274 bcf occurred last year at the end of January.

There is still plenty of gas around at the moment, like we said last week.