<Finding Needles in a Haystack The Oil Drum DrumBeat: June 28, 2007>

21 comments on This Week in Petroleum +

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cjenkins on June 28, 2007 - 8:31am Permalink | Subthread | Comments top

Perhaps the reason we are seeing an inventory build of crude oil vs an inventory draw on products is a function of the high refinery crack values. In other words, crude is less expensive to buy than the finished oil products. While the refinery industry enjoys high refinery cracks they would be motivated to buy crude instead of finished oil products. There is tremendous international price competition for the mogas and distillates where as there is not as much competition for the crude...realtively speaking. So under current market conditions where there is a healthy carry charge built into the crude price and where the crack spreads are also very profitable, why not store/build crude inventories for future refining. To simply buy the finished product would be to then be paying the equivalent high price refinery crack which has already been biult into the price of the finished oil product...good idea to store oil for the future when we have a peak oil sceanario and massive crack spreads. Make any sense anyone???

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GreyZone on June 28, 2007 - 12:59pm Permalink | Subthread | Parent | Comments top

I believe it is simpler than that. The futures market is in contango and further out oil is more expensive that front month oil. Thus it makes clear and simple sense to stock up close to max capacity on crude now and keep it there rather than paying the future anticipated price when we reach that particular month.

The futures market has been in contango now for a long time, sending a clear signal that prices are expected to only get worse. In such a market, you buy low (now) and sell high (later).

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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rainsong on June 28, 2007 - 1:43pm Permalink | Subthread | Parent | Comments top

When I checked the PEMEX site for what crude type was declining the fastest it was light marine crude.

Check this chart on page seven of the IEA PDF presentation.

http://www7.nationalacademies.org/bees/Nicola_Pochettino_Oil_demand.pdf

The quality of world petroleum is dropping and in a long term decline. The API average is dropping. A light crude will be 41 API. A low quality heavy oil will be about 8 API. The grade of crude is dropping. There are not enough cokers in place to handle the heavy stuff. You might fill a cavern with it, but if you do not have the equipment to refine it ... out of luck. There were sulphur problems that have become very expensive for the refineries to solve. Sulfur is acidic and combined with moisture it rots pipes that leads to corrosion and refinery fires. It must be removed from the oil to protect the public from the acid rain that is damaging China and India.

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