Prices are rising because of ... what? Is this a bout of grabbing anything that's black and runny or is there *real* demand out there?

Prices are rising b/c market investors are playing.
Basically, short sellers are covering and momentum traders are in play.
There are additional supplies for May, but refineries are buying it all up for they are stocking as much as possible.

Refineries are forecasting a robust summer still.

http://www.peakoil.com/fortopic7178.html

SA tossed the production cap.

An admission that demand is as high or higher than supply…

Sound like Texas in '71?

Sounds exactly like it.

It was said earlier that some refinery down in LA had problems restarting, so that was weighing on gasoline prices, which is weighing on crude.

Oil seems stuck in that 50-58 range...just waiting to test 60-70-$80 waters when given the chance

$55.50 now. I'm really starting to wonder if the Saudi's announcement today is behind this rise.

I'm just wondering why the oil price is so high, traders are saying that they fear a possible shortage in refinery output (gasoline, heating oil, etc.) whereas crude stockpiles are actually pretty high so crude oil price should go down and gasoline go up!

That's exactly what I don't understand. What's buying oil at a premium going to help in sorting out refinery limitations?

That is easy.
Refinery capacity is tight because need for gasoline, mainly.
Sweet crude oil is what is being traded.
Environmental regulations prevents refineries without adequate equipment to process heavy sour crude.
Sweet crude oil demands rise, despite enough oil on the market to supply demands.

Sweet crude yields better than heavy sour, so preference always given to sweet.

So if I understand you correctly, we have an adequate stockpiles of crude oil but it is mainly heavy sour crude oil that cannot be used by all the refineries. The bottleneck is not the refineries capacity but the quality of the refinery inputs. Too bad that the weekly IEA report do not specify the quanity of light sweet crude within the stockpiles. Can somebody confirm that theory?

I see what you're getting at, but the Nasdaq I see is the price for Light Sweet. Its going up while the refineries are at capacity.

Light Sweet Peak.

They might be purchasing and storing for future selling (anyone else see the story about oil companies buying up storage space in Amsterdam for oil)(several months ago).

Also some traders are now also willing to pay the storage fee's on the oil instead of selling off the months contract. They expect the storage fee's to pay for itself. There could be more and more traders wishing to try this strategy.

The Saudi Oil Minister did state that they would not be supplying light sweet crude in the interview. That leaves what is out there.

Sour crude is bad news for the US refiners.

Quote: "They might be purchasing and storing for future selling (anyone else see the story about oil companies buying up storage space in Amsterdam for oil)(several months ago)."

I remember seeing a similar story a while ago, only it wasn't oil companies buying up storage space, I seem to remember it was financial institutions - does that make sense? Maybe I dreamed it all.

I rather suspect with this Saudi news, that we'll be hearing lots of off-the-wall stuff.

Regards,

L.

So help me, I actually feel for the Saudi royals. I've been happy enough to use cheap oil during my life. Do you reckon they've got their helicopters filled up and ready?

Here's a link to that Amsterdam Oil Storage story:

http://www.stcwa.org.au/journal/25Sept2 ... 13653.html

Regards,

L.

khebab,
Yes, you are correct that I am saying the prices you are quoting are sweet crude and sweet crude production is maxed. All new additions we are seeing are non sweet crude.
This is a huge surprise to analysts as Saudi as late as 2003 have promised to develop their sweet crude production fields to increase supplies. It seems they have either given up or abandon that strategy. Now, they are saying all additional supplies will be sour crude.

SidneyTawl,
From what info I got, US is best position for processing sour crude. India and China are less equip to handle it than US. Also, all refineries in US, EU, India, and China are going to need to meet new environmental standards. India and China have refineries that openly complain to government that they will not be able to meet them. That means they will need to switch to sweet crude if government doesn't issue a temporary permit for them to continue operations.

I have not heard a single US refinery saying they won't meet those regulations.

Laurasia,
Yes, investment firms are purchasing oil and taking delivery of the oil. It is not as far stretch as it sounds. Some have purchase oil businesses as part of their strategy, so experts are handling the oil and not bankers.

nth,

I sure would like to see some info on how the US refineries are able to process sour.

Its my understanding that only Valero (speeling) and another small refiner are able to currently process sour. All the other refineries are set up for Sweet. These guys (Valerio and the other refiner) are making out like bandits with the price spread.

Also I thought most of the US refineries were mostly very old and already every expensive to maintain.

If the other refiners wish to switch to sour crudes it takes expensive retro-fitting. This takes around ten years is what I have heard. Maybe ten years is "better off" than other countries, but that is relative depending on circumstances. The Us is not part of Keoto protocals. I think those "agreements" will fall apart fast unless the people that now "buy and sell" the excess for profit don't allow it. As soon as they put "traders" in the mix you knew it wasn't a true fix anyway.

Sure hope (for piece of mine) you can give me some links so I can see how the US refieneries are able to process sour and/or can switch easily.

Also I thought I read where there were more refineries overseas of Sour than the US had. If I have it backwards I sure need the right info before I finish my script.

Thanks for the link L . I knew I had read about that.

On a reread of that link I noticed in one paragraph

Morgan Stanley
New Nasdaq (oil trading)

Could have used those words in todays headlines also.

hmmm syncronicity.