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286 comments on DrumBeat: May 10, 2007

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xburb on May 10, 2007 - 11:26am Permalink | Subthread | Parent | Comments top

I agree with you that the import numbers (and inventory levels) do not support a peak production hypothesis but rather a refinery bottleneck. Also, prices seems to have an effect on imports:

Your charts and comments always great. So what of the world crude inventory numbers? Any data to support that it will be difficult to import more gasoline b/c of crude stocks below 'normal' in places where the US usually looks for finished products?

This morn
Crude oil Rises on signs Gasoline Supply is Insufficient

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Khebab on May 10, 2007 - 11:28am Permalink | Subthread | Parent | Comments top

Re: So what of the world crude inventory numbers?

I have only data for the OCDE countries:



Stocks have been going down a little bit since the summer 2006 but are still at record high levels, clearly not consistent with a falling supply. Note that these numbers include both commercial and government controlled stockpiles (i.e. SPR) so this picture is maybe a little bit rosy.

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xburb on May 10, 2007 - 11:40am Permalink | Subthread | Parent | Comments top

Nice chart. Then maybe the refinery bottleneck exists elsewhere too. Gasoline up sharply today.

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westexas on May 10, 2007 - 11:55am Permalink | Subthread | Parent | Comments top

Is the chart updated through the first quarter of 2007?

http://ca.today.reuters.com/news/newsArticle.aspx?type=businessNews&stor...

IEA warns on oil inventories after big Q1 drop
Thu Apr 12, 2007 5:37 AM EDT
By Alex Lawler

LONDON (Reuters) - Oil stocks in consumer nations posted the biggest first-quarter drop in a decade and may fall further in coming months, the International Energy Agency said, keeping the heat under crude prices.

In its April monthly report on Thursday, the adviser to 26 industrialized countries also shaved its 2007 world oil demand forecast by 250,000 barrels per day to 85.8 million bpd though left growth in oil use unchanged.

Oil inventories are falling as supply cuts by the Organization of the Petroleum Exporting Countries kick in. Lower stocks have helped boost U.S. crude prices to $62 a barrel from below $50 in mid-January.

"There has been a sharp stockdraw in the first quarter," Lawrence Eagles, head of the IEA's Oil Industry and Markets Division, told Reuters.

"It's clearly had a tightening impact and we think it's going to carry on having a tightening impact on the market."

Inventories in the OECD fell by 80.5 million barrels in February. Preliminary March data for the United States, Japan and Europe suggest OECD stocks may fall by about 1 million bpd in the first quarter, the agency said.

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Khebab on May 10, 2007 - 12:51pm Permalink | Subthread | Parent | Comments top

No, the last available date is December 2006. The data is here:

http://tonto.eia.doe.gov/merquery/mer_data.asp?table=T11.03

From the IEA Oil Market Report (April 2007):

Total OECD industry stocks were 2,597.1 mb at the end of February, down 80.5 mb from January, and 49.6 mb lower than a year ago. Total crude inventories stood at 921.0 mb, 9.1 mb lower than in January, and down by 43.6 mb year-on-year. Total refined product stocks fell by 72.3 mb in February to 1,391.1 mb, or 12.8 mb lower year-on-year. Despite the draw-down, weaker demand kept end-February forward cover at 54 days, unchanged from the previous month and end-February 2006. Taking preliminary (and incomplete) March data into account, the first quarter remains on track for an OECD stock draw of around 1.0 mb/d. As noted in last month’s report, this would represent the steepest first-quarter decline in stocks since 1996.



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Imago on May 10, 2007 - 11:59am Permalink | Subthread | Parent | Comments top

RE: clearly not consistent with a falling supply

When I build my food stockpile, I size it not on a given amount of liters or kilograms but on my family consumption: 10 years ago we were 2 adults, now there are 3 children, two cats and some chickens, so the stock is more important.

I find strange in this nice diagram that nearly all stocks did not grow very much in 20 years when the consumption did.

It looks like that neither governments nor businesses made stocks adjustments in line with the consumption growth, so either they could not (falling supply) or did not think about it or thougth they were big enough, in that case stock analysis is irrelevant.

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Khebab on May 10, 2007 - 1:04pm Permalink | Subthread | Parent | Comments top

A way to measure the adequacy of stocks relative to current demand levels is the stock coverage:



stock coverage has been increasing from 51 days in 2004 to 54-55 in 2006. If peak oil supply is occurring about now, I should expect a big drop in stock coverage.

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peakearl on May 10, 2007 - 2:05pm Permalink | Subthread | Parent | Comments top

Why a "big" drop. I think a consistent, even though gradual drop would be perfectly reasonable. For example, US production fall was very gradual initially. Mexican production had its highest month in 2003, highest year in 2004, but has only shown a significant decline over the last year. Typically, the initial signs of a peak have been subtle prior to becoming obvious. We just don't have a long enough period to determin yet. If the trend above were to continue only another 5 mos (I'm not stating it will - I'm waiting to see), it would actually be dramatic, and that is really not a very long period.

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Khebab on May 10, 2007 - 2:12pm Permalink | Subthread | Parent | Comments top

It depends also on how demand for oil will evolve (mainly reacting to prices), the stock coverage can remain constant if both demand an supply are falling at the same rate. However, a 54 days coverage can melt quite rapidly if demand is growing and supply is dropping or even staying constant.

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GreyZone on May 10, 2007 - 2:16pm Permalink | Subthread | Parent | Comments top

Why, Khebab? This picture is the OECD only, the wealthiest part of the planet. In a market where supplies are constricting, it is common to see people build spare inventories at lower prices for consumption later when the price is higher.

Your statement would be true of the world as a whole but not of just the OECD. In fact, if the OECD is outbidding the rest of the world, a crude build in the OECD is one possible artifact of that. We cannot tell from these numbers without global data since the OECD is the wealthiest subset of nations on the planet.

Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett

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Jack on May 10, 2007 - 8:36pm Permalink | Subthread | Parent | Comments top

I think wealth is only half the picture. Energy as a portion of GDP is probably equally important.

If you were looking at Louis Vittion (sp?) handbags, then wealth would be the crucial factor. However, energy is only partially a luxury item.

Countries such as Thailand, Korea and China import oil in large part to fuel industry and exports. Oil is a leveraged resource in the production process. For every dollar less they spend on this oil they lose $1x dollars in industrial production and export revenue.

High oil prices are far more likely to lead to reduced consumption in poor Americans than mega-rich third world elites or those who are using it for industrial production and exports.

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westexas on May 10, 2007 - 2:19pm Permalink | Subthread | Parent | Comments top

As Peakearl noted, the initial Lower 48 decline was quite gradual, an average of less than 1% per year, over the first two years, and this was without the benefit of nonconventional crude oil production.

Also, the OECD inventories don't reflect the world situation.

IMO, the key point is the world crude oil production response we have seen to the oil price increase. Oil prices are up by two-thirds, on average, relative to the average price in the 20 months prior to 5/05, and crude oil production is down by about 1%, relative to 5/05. The pattern of lower crude oil production versus higher crude oil prices is what we saw in the Lower 48 in the Seventies.

BTW, gasoline prices are jumping today. Traders noticed that outside the west coast, US gasoline inventories fell by about 700,000 barrels.

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Fletch on May 10, 2007 - 4:03pm Permalink | Subthread | Parent | Comments top

I think looking at stocks as just as snap shot in time doesnt tell the whole story... 10 years ago every major oil company would have held stocks for its own refining system..with all the mergers that have taken place Exxon/Mobil, BP/Amoco, Chevron/Texaco etc etc has meant that combined systems have meant synergies, such that costly working capital tied up in stocks can be reduced as the need of the 2 combined is not as great as the sum of the 2 companies as individuals...so comparing stocks even 5 years ago to current can be somewhat misleading as you are not comapring apples and apples. More importantly however is how the market looked at differnt points in time. A look at the forward curve of the market will give you a idea of the propensity of the market to store oil. In a contango it pays you to store and sell at a later date since the deferred price of oil is greater than the cost of storrage, time value of money and potential shrinkage...At the moment it pays you to store current crude production and sell out around late summer next year. Hence we have comfortable stocks of crude comapred to 5 yr averages (but then I'm falling into the trap above)..On the other hand gasoline is steeply backwardated and prompt production should be sold rather than stored and so it is no surprise stocks are low..

So when looking at storrage and comparing points in time it is important to know the market dynamics governing the periods being compared.

Thank you and goodnight.

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FTX on May 10, 2007 - 6:35pm Permalink | Subthread | Parent | Comments top

Welcome to TOD, Fletch.

Good comment.

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