Oil Rises, Gasoline Climbs to a Record, on U.S. Supply Decline
Posted by Prof. Goose on April 9, 2008 - 9:45am
Topic: Supply/Production
http://www.bloomberg.com/apps/news?pid=20601072&refer=energy&sid=aZNVdNX...
(Bloomberg) -- Crude oil rose above $111 a barrel in New York and gasoline surged to a record after a government report showed that U.S. supplies unexpectedly dropped.
Crude oil inventories fell 3.15 million barrels to 316 million last week, the first decline since February, the Energy Department said. A 2.3-million-barrel gain was forecast, according to a Bloomberg News survey. Supplies of gasoline and distillate fuel, including heating oil and diesel, also fell.
``The crude stock draw was obviously the big surprise and leaves supplies too tight for comfort,'' said Antoine Halff, head of energy research at New York-based Newedge USA LLC. ``Refineries are operating at a very low rate and we still didn't get an inventory gain.''
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Nate adds (Source EIA):
There is a HUGE disparity in DOE vs API numbers (NB, Yergin uses API)
DOE: Actuals
Crude oil: Down 3.1 million barrels
Motor gas: Down 3.4 million barrels
Distillates: Down 3.7 million barrels
Complex: Down 10.3 million barrels
API: Actuals
Crude oil: Up 6.0 million barrels
Motor gas: Up 1.8 million barrels
Distillates: Down 0.2 million barrels
Complex: Up 7.6 million barrels
Below is the Bloomberg survey of analyst’s expectations:
Crude oil: Up 2.5 million barrels
Motor gas: Down 2.8 million barrels
Distillates: Down 1.5 million barrels
Complex: Down 1.8 million barrels
Some selected graphics below- (thanks to Ken Carroll at Johnson Rice)
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(Thanks to Johnson Rice for the oil product graphics)
Does anyone have a history (i.e., stats, graph) on the accuracy of DoE vs. API 'actuals'?
It looks like the Bloomberg analyst survey is a rough average of the two.
I have this data going back to the start of 2004. The standard deviation of the DOE vs Bloomberg estimate is 2819k over that period (222 weeks). The standard deviation of the API vs Bloomberg estimate is 3949k.
So the estimate is significantly closer to the DOE number over the long run.
Interesting the DOE number is closer to the estimate than even the average of the DOE and the API. If you take the average number each week, then the standard error is 3012k.
Hope this helps.
Declining Net Oil Exports Versus “Near Record High” Crude Oil Inventories: What is going on? (September, 2007)
http://www.theoildrum.com/node/2975
As noted in the linked article, I don't think that US crude oil inventories are telling us that much. Regardless of the actual number, we are, IMO, simply seeing some minor fluctuations in a thin, Just In Time inventory (best measured in hours of supply) in excess of the Minimum Operating Level of about 270 mb.
The key problem that US refiners are facing is a squeeze between ever more expensive crude--as importers bid for declining net oil exports--and the volume of refined product that consumers can and will buy, as the prices of refined products increase.
This somewhat analogous to the problems that airline are having. They have to balance ever more expensive jet fuel against the volume of tickets that consumers can and will buy as the price of airline travel increases.
What we are seeing is progressive forced energy conservation moving up the food chain.
With continued apologies, "Ask not for whom forced conservation comes, it comes for thee."
Looking at the product supplied data instead of the amount in storage, it looks like consumption has changed little since last year. Here's a quote:
In other words, the increase in price at the pump is having little effect so far. That's happening in spite of deteriorating economic conditions, which might be expected to result in reduced demand. With the problems in the airline business (another one went under yesterday), how many folks will switch from air travel to automobiles for this year's vacations? This summer's driving season is likely to get interesting, even without some further "events" in the Persian Gulf.
E. Swanson
BTW, Dan Yergin "warned" us of what was coming. Copy of a note I posted on TOD and sent out to joint venture partners, for the benefit of oil trader types:
Yergin lives on another planet and has done so for quite some time.
Ehh let’s see ehh, think of a number ... shoot wrong again !
Anyone, what is this guesswork good for? Is this guesswork (on an average) good or bad for the stock-exchange? Why not skip these utterly stupid exercises and just face reality every Wednesday?
95% of all financial media is total BS-why should energy reporting be any different?
But Sir, these data are from our democratic government!! Surely you aren't implying that Gee Dubyah would actually LIE to the 'merikan sheeple! Wouldn't that be grounds for impeachment?
{sarcasm off}
E. Swanson
BrianT, see my question - do you have any proposals.
What is this oil-stock-guesswork once a week good for?
Why not every day (more detail) or every month (less noize) ??
(Suggestions appreciated)
I have far more confidence in the reporting of the data from the EIA than most other sources. As they stressed, over and over again during the two-day Conference in DC, their data gathering procedures (and the statistical approach they take) is pretty straight forward.
It's their projections that leave something to be desired.
Great data, not so great projections in a number of areas. They (the EIA, and Guy Caruso in particular) offered some reasons as to why this has been so and what they are doing to address a projection approach that is and has been dominated by demand side factors as opposed to the supply side.
Yesterday afternoon, there was some fairly technical and astute observations of the macroeconomics trends, why some "signals"s seen in the past aren't having the same the effect (or perhaps it was more accurate to say a greater delay)that they did in the past.
Those of us whom stayed to the "bitter-end" heard some interesting observations on vicious cycle (sounds like positive feedback) that we are now in.
New record:
Oil prices above $112 as supplies fall
$2 to Triple Yergin (Tapis is already over Triple Yergin).
(just for the record)
We have a local Yerginite in Norway as well.
Mr Arnstein Wigestrand in SEB Enskilda (a bank) and he is naming himself "an expert in the field of oil-price-analysis" (hehehe, good one )
Now, Mr Wigestrand's AVERAGE prediction for the "year of the lord" 2008 , is 55$. That number was decided late 2007. Now, as of April 3rd, he has index-regulated this due to the falling dollar, so running average is set to 65$ for the year 2008(!)
http://www.dn.no/energi/article1371695.ece
(norwegian language alert, but you will understand the word kollaps and recognize those numbers..:-) )
Crude buying is still being driven by dollar weakness as the greenback searches for new lows against the Euro today.
As for Yergin, I strongly suspect that the sophisticated model on which he projected his $60 price (I am kidding) did not also project a 20% drop against the Euro over the last 12 months, or a flight to commodities by fund managers hoping to protect capital against inflation of the U.S. dollar and a falling stock market.
Should the U.S. dollar correct itself, crude will fall quickly and hard on the reduced demand for product by a U.S. economy in recession. Prices will reflect the fundamental balance of supply and demand. At some point, they always do.
The spec long position in crude oil is tiny as a % of total position. I will try and find graphic and or link. Far far higher on gold and grains.
I don't doubt that as a % of trading volume, there is less spec in crude than gold or grain right now. (I suspect that that's always been the case with gold, but that grain is a new development.) However, I don't believe it's a "tiny %". I'd love to see the data.
That's what it's been doing.
http://www.belfasttelegraph.co.uk/breaking-news/ireland/business/article...
Now you know why the UK didn't join the Euro.
Just like in the USA, the exchange rate is good for some states and very bad for others - expect the Euro to disintegrate if this carries on for very long.
So right, DD. Even then, I had a good chuckle. Thanks.
Supply has been flat for several years and demand has continued to increase. In my book, that means the fundamentals support rising prices. Which is good because that theory matches reality, so I can't share your cognitive disconnect.
"Should the U.S. dollar correct itself, crude will fall quickly and hard on the reduced demand for product by a U.S. economy in recession"
Currencies do not have a history of "correcting themselves". Currency being inanimate has no ability to care whether it is correct or not.
Currency values have to be corrected by policy correction and market action. Right now there is no sign of policy correction as the American taxpayers are being given a token check of some $600 to shut us up and keep us happy (talk about your silver bb, fuel and food prices have increased enough to swallow that up),and we are still carrying the 1 trillion dollar "war of weeks, not months" on our backs.
But, when that golden day comes when we do see a rebound in the dollar, your right, commodities of all types will fall, and possibly very fast and hard (ala 1982). The only way that will happen of course is if end the cost of the war (one way or the other, win lose or draw, the currency don't care, just end the cost) and per Paul Volker's example in the early 1980's go to a high interest policy to shake out the excess.
The problem is, it is going to HURT LIKE HELL. High interest will surely sink the economy into a hard recession, and the collapse in commodities prices will leave many financial houses, hedge funds and LLP's holding the bag...many of these are the same ones who just got short on the housing crisis, and before that the dot com crisis and before that the Asian bond crisis and before that the S&L crisis...and before...well you get the picture.
The good news is that oil consumption should see a collapse in demand the likes of which has not been seen since the early eighties, and for awhile we will be swimming in the stuff. and Yergin will finally be right, but a decade late, making his advice worth nothing. The bad news is, even though swimming in oil, probably relatively cheap oil (in real, not nominal terms), not many of us will be able to afford to buy much of it. Many of us will have already found alternatives to it in the one remaining area that it matters in, being transportation. By the way, natural gas, the fuel that matters most in the long view...as of an hour ago, nat gas was up 3.70% to over $10.00, while crude was up "only" 2.98%. Ahhh, natural gas, the fuel that is now used to cleanse Diesel fuel and fuel the ethanol future...it's starting to look like time to build that electric car even if you have to build it yourself out of the scrap pile.
RC
RC: Yes, it is just like 1982. Once the USA straightens up, everything will be A-OK. China is just a rice bowl economy and India is nothing. We will be swimming in crude as those economies are totally reliant on our greatness-if China would just strengthen the Yuan quicker (currently at a 17% per annum clip) everything would be rosey as the trade deficit does a 180. Don't worry about the effect on crude prices of a dramatically strengthened currency of the world's most dominant industrial economy-that is just negative thinking.They don't have what we have (whatever that is).
Roger has been singing this song for at least three years now. He used to predict Saudi Arabia would "open the floodgates" "real soon now" and flood the world with cheap oil again but he's quietly been backing away from that absurd prediction for the last 18 months or so. KSA may not have yet collapsed as some here expected but it sure as hell isn't flooding the world with cheap oil. And under the circumstances I am not sure why KSA would even do such a silly thing. Most of KSA's oil can be produced very cheaply so at $112 per barrel, KSA appears to be profiting $100-$105 per barrel. KSA loves it when demand shoves prices higher and brings marginal producers onstream. KSA can make tons more money selling 8.7 mbpd at $112 per barrel than they can selling 12 mbpd or even 15 mbpd at $38 per barrel (or whatever other "cheap" figure Roger might throw out there).
Wow. 345 billion a year in pure profit.
Cheers
Grey, how ya' been?
Well, I'm afraid you may have stepped in it again when you said,
"KSA may not have yet collapsed as some here expected but it sure as hell isn't flooding the world with cheap oil. And under the circumstances I am not sure why KSA would even do such a silly thing."
Am I to assume that you now accept my original argument that KSA may be willfully restraining production so as not to undercut oil prices, and that is possible (though by no means assured) that they may have the ability to raise production after all? Hmmmm...
That's eerily like my original contention, although my argument alwas was that they don't have to withhold oil per se, they just have to stall making needed capital investment for awhile in new projects and reworking of oil fields...
Nice to see you and I are on the same side in this discussion, Grey.
The Saudi's are doing what we would do in similiar circumstances...what any bird hunter would call "flushing" out the prey. KSA will soon be able to tell who the competitors are, how much oil they can deliver, how much it will cost them to deliver it, and what alternatives to oil may be out there that have a chance of gaining investment.
If they have the possible production to spare, we will know it when we reach the maximum level of pain we can bear, and make the sacrifice to invest in alternatives. They need to make sure we are fully committed to the expensive alternatives, and cannot back out easily. Then they will pull the trigger, and we will see if they have any ammo left in the oil gun.
I don't know much, but I do know this: We are NO WHERE NEAR the level of maximum pain yet. If you don't believe me, go and drive down any interstate highway, or go by your local Mercedes Benz dealer and shop for the C class car with the 451 horsepower engine (and that's the middle of the range, the mass market car...don't even ask about the really powerful S class stuff!)
"KSA can make tons more money selling 8.7 mbpd at $112 per barrel than they can selling 12 mbpd or even 15 mbpd at $38 per barrel (or whatever other "cheap" figure Roger might throw out there)."
That may be a number that Yergin would throw out there. Roger never would. If there is one thing I pray for it's that we never see the catastrophic effects of $38 oil. $200 per barrel oil would do the nation and the world far less damage than $38 per barrel oil.
And the Saudi's know it. That's why their ability to produce big, if it exists (and we have absolutely no way to know), is a more dangerous thing by far than the immediate risk of them peaking.
Be very careful of both scenarios.
RC
RC
Brian,
The difference I see in your view and my view is that you seem to think that when I say commodities prices could collapse and at least for some time we may well end up with a glut of oil brought on by a hard recession as me predicting good times.
My view is a bit different. I see a decline in oil prices and oversupply of oil as a bad thing, and if it is large enough in magnitude and occurs in too short a time, a very bad thing.
We know what happens in periods of that type. Again, look at the 1980's. The U.S. had less than one trillion dollars in debt when Ronald Reagan took office. Over 200 years, less than a trillion dollars debt. Following 8 years, about 4 trillion. Could we survive economically if a rise in national debt were to occur of that magnitude from the current high levels we already carry? What do you think, BrianT?
If oil prices fall dramatically, do you think ANY of us can resist that nice RV or that great sexy high speed cabin cruiser yacht with the twin turbocharged engines...or at least a 12 cylinder car, 'ell, you only live once! $38 per barrel oil, hell, I admit it, I would go shopping for one last gasp of the great internal combustion romance! If the last of the cheap fossil fuel era lasted only another decade, that would be longer than most of the gas engined powered junk lasts nowadays anyway! Put it on my tab, I'm an old man anyway, what do I care about debt?
If one believes that carbon release is a problem, how in the world can one hope for cheap oil? $38 per barrel oil would set off the great final "carbon luxury bath" that would make the 1980's and 90's look like the "green" era, and this time it would be worldwide, with China and India trying to look like 1980's New York or So Cal in the "glory days" of turn of the century America.
We have not even discussed the investment community, who now finding out that the safest investment in the world, that being real estate, which WOULD NEVER DECLINE IN PRICE, did in fact decline in price, has now ran like cowards to the NEW safest investment in the world, WHICH WILL NEVER DECLINE IN PRICE, that being raw materials, commodities, and best of all oil and gas. Hey, how can you lose on oil and gas, God ain't making any more of it! Sound familiar?
Of course, the problem is, they are not putting their own money into this new SAFE investment. By conduit of the hedge funds and the buyout LLP kings and the mutual fund genuises, the banks and brokers and "advisors" have the endowments of Universities poured in, the retirement funds of city workers, the funds of charitable foundations, and the average schmuck who has never bought an oil future in his life and the office girl who says to her broker, "here, you invest it, I know you know what your doing." All pouring billions into the wacky world of oil futures. Does any of this sound familiar? (sigh)
What is needed is some sanity. Some stability. When oil was around $85 or $95 dollars per barrel, I said then what I will say now. I would be perfectly content if it stayed within a couple of bucks of that range, inflation adjusted, for the rest of my natural life. What IDIOT wants oil back at $38 bucks a barrel, killing the possibility of alternatives, killing the incentive to at least be sensible, killing the return on investment for E&P in the energy industy?
No BrianT, when I describe the possibility of a commodities price collapse and a possible glut (albeit temporary)of oil, I am NOT describing everything "A-OK" as you so flippantly say. Just the opposite. The least of our problems will not be China or India or the Yuan. China and India with two billion plus mouths to feed, all hungering for USA 1990 will be THIER problem, and the worlds.
Our problem will be an economic wipeout that will make this whipped up "sub-prime" hysteria look like the dog and pony show that it is when we see trillions of dollars of "commodity" investment disappear overnight and oil consumption shoot through the roof as the alternative renewable energy programs, our only avenues into the future collapse into bankruptcy.
There are events that can occur in the world that are EVERY BIT AS DANGEROUS AS PEAK OIL.
It may not seem like it now, but the day may come when we pray for oil at $100 per barrel. All I ask is for folks to realize that we may be praying because oil is so much higher than $100. Or because it is so much cheaper. One is as dangerous as the other if it happens too fast. The difference is this: The hapless public is at least made aware of possible danger by expensive oil. Cheap oil is like an anesthetic that knocks us out so that our throats can be slit in our sleep. In which case do you think we at least have a fighting chance?
RC
RC: You could give Alan Greenspan a run for his money.
Agreed that currencies to do correct magically. However, I foresee a time in the near future when the ECB and BoE are going to have to start/accelerate the rate cutting. That will weaken the Euro and Pound against the U.S. dollar sending it back up.
I agree. I expect to see a continued accelerating decline rate in net oil exports, and as forced energy conservation moves up the food chain, I expect to see an accelerating increase in prices, as the bidding between oil importers gets tougher. If we "only" see a 24%/year rate of increase, half of what we are currently seeing, oil prices would double every three years.
I believe the overvalued US dollar IS currently correcting itself...
There is a pattern of lies coming out of all Federal US agencies, and the discrepencies shown here are no different. We are constantly being lied to about everything from the war in Iraq to oil data. The trouble is lies do not change reality, but I think the Govt. thinks they do help shape perception and that's why they do it. They obviously figure it's better to err on the side of lying rather than on the side admitting a not so rosey truth.
And speaking of truth, is anyone else on here as alarmed as I am regarding the constant rise in oil prices? My wife is a sculptor and the cost of bronze has risen every quarter over the past 5 years. The suppliers of bronze say its due to rising demand from China. However, if the price of oil does the same thing as bronze and increases in price every quarter for 5 years, what will be the price of oil and what will happen to the economy.
In a general sense it's like we got lazy about making everyday products and let China take that, and in response their economy is increasing by an average of 10% per year! The result is their breathtaking expansion is consuming more and more of the world's commodities. We may actually just be starting the early stages of what will be a run on oil by China that could last as long as the run on steel (bronze) has, and that will be disasterous for this country.
But now that China is raging ahead and this country is sinking fast, what do we do about it? At this ongoing rate it's only a matter of time before we turn into a 3rd world economy with a worthless buck.
Don't call it "lies." It's just "not talking down the markets." :)
Just as the 19th century belonged to the UK & the 20th to the US, the 21st belongs to China. My son's girlfriend was born in Guangzhou. Her parents brought the family to the US for the sake of economic opportunity. I tell my son that should she & he have kids, they may end up returning to China for the same reason.
If they continue their current path of economic growth on the expense of their environment, I don't think they will dominate this century for very long.
Neither will anyone else as our whole economic system is set on self-destruction.
"is anyone else on here as alarmed as I am regarding the constant rise in oil prices? "
why would anyone be alarmed ?
Fuel/energy prices will continue to rise and the recession will continue for the rest of our times .... there is no energy fairy
"is anyone else on here as alarmed as I am regarding the constant rise in oil prices? "
That's a funny question to be asking on TOD :)
Alarmed that they are increasing no. Alarmed that we will see large swings in price as the market slowly prices in peak oil and that it will take years yes.
We have a long way to go before the market correctly prices oil to the level needed to force conservation or demand destruction into the future. Once it finally correctly prices oil which means it needs to overshoot on the topside quite a bit we will see basically steady prices for oil as demand destruction matches up with supply.
Given how inelastic demand is and that in the interim prices will make wide swings around the upwards trend I don't think the market will correctly price oil until 2015 or so.
We have a long long way to go before we have a stable post peak oil price.
Until its high enough to cause steady and significant demand destruction we don't have a stable oil market.
You don't even want to know what that number is.
Yes. I do. Only I want to know what it is in something other than a fiat currency.
Man thats a tough one actually. I've thought about that. One part of the problem is that price inflation is really hard on the poor so I expect a lot of price inflation or in effect all fiat currencies are going to lose purchasing power for food/energy etc. In general this means the poor are going to see a much higher real price for oil/gasoline then a wealthier person that has a bit of leverage in their salaries or investments that can make up somewhat for price inflation.
The problem is you really don't have a good equivalent to oil thats not influenced by the price of oil itself. Even gold is not good since its pricing is sentiment driven.
Its a sort of semi-currency. Maybe electricity/coal is better ?
So maybe the right answer is to look at oil vs electricity/coal and gold is a fair measurement.
A lot of science fiction books use energy credits as currency and some form of basic energy is the backing for the currency. You can see the obvious problem is that for the most part oil is our real money and everything else if you look is measured in terms of oil not the other way around. Thus I'm saying electricity and coal as a energy credit equivalent thats fairly independent and gold is in the mix since its the other quasi-real currency although its sentiment driven and of little real value.
But in the end this is not all that important because what matters to us is when the real price for gasoline exceeds the ability of the lower middle class to pay.
Since they suffer the highest inflation levels and have the least amount of wage arbitrage its when they become truly poor that the Western nations changes. If anything trying to figure out a "real" price hides the issue.
That problem price is not all that far off my estimate for the US is around 5-6 dollars a gallon is when the lower middle class starts heading down hill. But it won't be until the price goes over ten dollars a gallon that a majority could be in trouble. And inflation adjustment is not relevant since the wages won't change from todays. Spiraling food prices are however working to bring the painful price threshold down for this group. In general this group has at best a few hundred dollars of disposable income every month say 100-400. So its not going to take much more to send the