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Page added on November 30, 2013

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Too Much Oil: U.S. Storage Set to Pass the 400 Million Threshold

Too Much Oil: U.S. Storage Set to Pass the 400 Million Threshold thumbnail
Trend is to Store more Oil 
A year ago oil in storage stood at 274 million barrels, and with another robust year of domestic production, and despite curtailed imports, the US Oil Inventory stands at 391 million barrels and climbing.

We are still technically in the building season for oil supplies which peaked in late May just shy of 400 Million Barrels, before the drawing season kicked off with the exporting of gasoline through increased refinery utilization led by the gulf coast refiners with their increased capacity to take advantage of the spread differential and cheaper operational energy in natural gas to export refined products more competitively than peer nations.

New Records Coming Soon
The domestic need for refined products was stagnant at best, the real demand was in the export market, without a robust export market for refined products, oil supplies would have crushed the 400 Million Barrier this summer, and prices at the pump would have been much cheaper here stateside.
So the drawing season accounted for roughly a 40 million barrel retracement in US supplies, and we are not even close to the  middle of the building season, which even by conservative estimates should continue until mid-March of 2014.
We might have some year-end selling of US inventories due to tax reasons, especially in Texas, but after all is said and done, if we go by the recent historical barometer of last year where we added roughly 25 million barrels of oil supplies to inventories, this puts supplies around the 416 Million Barrels of Oil level in the heart of the building season.
If domestic production continues ahead of pace and imports are not properly managed then maybe 425 Million Barrels in storage is possible, all modern records at this point in the data.
Fundamentals & Price: A Path Less Traveled in Recent Years
What effect this has on Oil prices is an entirely different matter as the Oil market is one of the most manipulated markets in the trading world, just look at the Brent-WTI Spread Trade this year for proof of that, and over the last 4 years for that matter.

Reading: Ban Goldman from Playing in the Commodity Market
All markets are pretty bad these days when it comes to market shenanigans, and when the Federal Reserve has basically gotten into the business of artificially created wealth through artificially pushing up asset prices all bets are off when it comes to predicting price adhering to fundamentals in the marketplace.
Fundamentals have become irrelevant in most markets these days. But some of us analyst types like to do fundamental analysis just for old time`s sake, who knows it might become a useful tool again sometime in the future once markets lose this unprecedented liquidity injection phenomenon.
Domestic Production
In looking at Domestic production, the US produces over 8 million barrels per day compared with 6.8 million this time last year, quite a significant jump year on year, and ahead of where my most optimistic forecast was for this metric earlier in the year in March of 2013. This increase in Domestic production is being offset by a reduction in Oil imports with the US importing 7.7 Million barrels per day versus over 8.1 million barrels this time last year.

Managing Imports
So the goal is to control supplies through managing imports to align with the substantial increases in Domestic production over the last several years, and this trend continues to play out at present. How far this strategy can go before world oil prices start reacting with considerable downward pressure is anybody`s guess but definitely something to keep track of in 2014.
But the last several months have had several weeks where Domestic production is more than Imports, and this milestone is quite an achievement for an ‘Outsourcer’ Nation with its core economic strategy of the last 30 years for goods and services.
2014 & Oil Metrics
Thus if we go by recent historical trends is the 9 million barrels per day of Domestic Oil production really possible for 2014? Can the US hit the 9.5 Million Barrel per day mark? And if so what does this mean for Global Oil prices?
All these dynamics will be worth watching in 2014, to be sure there are other factors revolving around China, Iran and Venezuela not to mention Saudi Arabia`s strategy in regard to Oil production, but nonetheless 2014 ought to be an interesting one for the Oil Market.


3 Comments on "Too Much Oil: U.S. Storage Set to Pass the 400 Million Threshold"

  1. BillT on Sat, 30th Nov 2013 2:11 am 

    It took me a few minutes to stop laughing when I read this headline.

    Then the article got a bit more realistic and I agree, 2014 IS going to be a very very interesting year and for more than the oil market. Are you prepared?

  2. shortonoil on Sat, 30th Nov 2013 6:05 pm 

    According to this article US production has increased 17.2% in the last year. While at the same time prices (WTI) have declined by only 11.2% from their yearly high. This occurred even though demand is down. That implies that the slope of the Supply/Demand curve has changed radically. It is flattening out!

    We content that it is the result of the quantity of shale oil hitting the market. More than 50% of it does not process into transportation fuels. It is used as a diluent for Canadian bitumen, extra heavy oil, and as a feed stock for varies chemical processes. Traders price crude from inventory numbers, without taking into consideration the composition of that inventory. Crude prices have not been this low relative to their price history since 1998. Like they did then; they will go back up! Shale oil will only give us a short reprieve from $100/b oil. The depletion of conventional crude is continuing.

  3. flamingyak on Mon, 2nd Dec 2013 3:40 pm 

    I’ve worked 25 years in oil, including as a Oil Trader. I think the word “manipulated” is really misplaced here – it implies a concerted or coordinated effort to navigate the price in a specific direction. Remember that each bbl sold by a trader is also bought by a trader, each working is opposite directions, each profiting from opposing directions in the market after taht deal (short or long). A volatile market is not manipulated, fundamentals in continental markets caused the Brent/WTI swings – the physical isolation of Cushing Oklahoma from the gulf coast import location meant a flood of land-locked oil in the WTI marekt. Nobody was manipulating anything.

    Using the “Pub” analogy on page one of your website, I would clarify that analogy this way … when the Drinks get short in supply the price goes up, and the buying slows down. Drinkers go home, move onto another drink or drink less. It gives you more time to find new bars, although they are probably more expensive bars to drink at, there are probably a lot more open then we think.

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