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79 comments on Higher Inventories but Demand Drop Slowing?

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westexas on January 14, 2009 - 1:47pm Permalink | Subthread | Parent | Comments top

Well. . . the last four week running average net import number was 11.5 mbpd (through second week of January). This was 700,000 bpd below the annual average number for 2007, and 400,000 bpd below the net import number for second week of January, 2007 and January, 2008 (both four week running averages).

It's pretty clear that have seen the decline in demand outpacing the long term decline in net oil exports, but I expect to see a combination of voluntary + involuntary net export reductions to soon cause the decline in net exports to outpace the decline in demand.

Assuming a current net export rate of 20 mbpd from the top five (versus 24 mbpd in 2005), our middle case is that in the next four years, at a rate of 20 mbpd, the top five will have (net) exported about one-third of their post-2008 cumulative net oil exports--one third gone, in four years. Over the same time period, I expect to see our #3 source of imported oil, Mexico, at or approaching zero net oil exports.

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noutram on January 14, 2009 - 3:37pm Permalink | Subthread | Parent | Comments top

...any views on when the Supply-Demand Gap will close back up at present rates?

Nick.

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westexas on January 14, 2009 - 3:55pm Permalink | Subthread | Parent | Comments top

My guess is by mid-year, but it's a multivariable equation.

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paal myrtvedt on January 14, 2009 - 7:02pm Permalink | Subthread | Parent | Comments top

Here we go again :-)

.... Supply-Demand Gap.

In june of 2008 Supply = Demand, at 147 $ and today january of 2009 Supply = Demand, at 37 $ pluss change ...
There is no such thing as a Gap, IMveryHO.

If there is a Gap there must be a difference somewhere, so then, where is that difference?

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Nate Hagens on January 14, 2009 - 7:11pm Permalink | Subthread | Parent | Comments top

storage

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paal myrtvedt on January 14, 2009 - 7:22pm Permalink | Subthread | Parent | Comments top

Yes sure, but then again there is always storage along the line , between producer and ultimately the gas-station.
Q: Where are those "supply minus demand"-storage tanks actually ? Do those tanks have a "supply minus demand"-sticker sticked onto them or ... are they simply inside our virtual imagination ?

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HFat on January 15, 2009 - 3:55am Permalink | Subthread | Parent | Comments top

Doesn't the contango tell you that there's an imbalance?

It seems to me that these loaded tankers sitting around are adorned with such a sticker for instance.

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paal myrtvedt on January 15, 2009 - 9:05am Permalink | Subthread | Parent | Comments top

contango ... imbalance? ????? what ?

HFat you have to think harder at my question. The tankers you refer to are already sold to my knowledge, thus not part of my claim.
To understand the gist of my claim, you need to understand the basic idea of how oil is traded. It's an auction, consisting of discreet sales of units of 1000 barrels..... therein is the answer.

OIL IS TRADED AT AN AUCTION - therefore DEMAND ALWAYS = SUPPLY
An auction has an item - one item - and the asking/bidding price always narrows in towards each other ..... and suddenly those prices match, viola SUPPLYING PRICE = DEMANDING PRICE. It's like the stock exchange and you never hear of the idea of a supply-demand GAP there ... :-)

... you see ?

Another way to look at it is that you demand oil at 10 dollars /barrel today .... I'm not holding my breath neighter should you. Q: When do you believe Supply will be coming down to your price ? Ever ?

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HFat on January 15, 2009 - 9:30am Permalink | Subthread | Parent | Comments top

I understand what you're saying but it's a tautology.

What's more interesting I think is to look at the consumers' demand as opposed to the gross demand which includes hoarding. In that sense, supply has been stronger than demand in the last few months leading to unusually high storage. This is not a sustainable state of affairs obviously.
The reason I brought up the strong contango is that it's an indication of market participants expecting higher prices going forward. Additional buyers intent on hoarding the stuff have been showing up on the market, keeping the spot price higher than it would otherwise be.

There are probably many empty tankers still. Additionally, many tankers currently in transit could easily be turned into floating storage as the OPEC cuts are diminishing the amount of oil in transit.

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paal myrtvedt on January 15, 2009 - 10:24am Permalink | Subthread | Parent | Comments top

Alright, back to my initial point.... Supply-Demand Gap. There is no such thing . Thats my point.

If a comodity is in short supply (acquiring-) price will go up , on the contrary it will go down. (basic trading knowledge).

Philosophy:
There is no gap in "anything" unless you set a "fixing point" - a standard "no gap" position. Think of a door, as long it's closed there is no gap, open it .... there you go, gap there is ... big / small defined by the angel of opening.

Lesson :
1) ... unless there is an universally accepted price for an oilbarrel at say 100$ there vil never be any gap in supply/demand.***That will happen every day***
2) or .. say if there is set a standard for "how many barrels that should be traded per day globally , say 85 mb/d" , one can start to argue "there's a gap" if there comes to a deviation from that number. ***That will happen every day***

So the idea of "a gap" has no value IMHO.

(I guess this gap-thing will continue, with or without my help :-)

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HFat on January 15, 2009 - 10:32am Permalink | Subthread | Parent | Comments top

Yes, this gap thing is somewhat silly. I figure it's a kind of colloquialism. But I'm sure you could understand what the poster above meant with this "gap", especially after it's pointed out to you that more storage is probably what is meant.

Words can have different meanings. There's no point in correcting people who keep using what you think are the wrong words over and over, is there?

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paal myrtvedt on January 15, 2009 - 11:34am Permalink | Subthread | Parent | Comments top

HFat ; "I figure it's a kind of colloquialism."
Yes, I could agree with this, if this oil-supply-demand-gap-definition was well defined and understood, but I don't think it is. Many readers (people) swallow the consept that there is "gap-oil" somewhere ...

The reason I made a sceene of this is that I find these gap-arguments very misleading , to the extreme actually.

See what Noutram asks here "...any views on when the Supply-Demand Gap will close back up at present rates?"
HFat ,do you understand this ?

"... Gap will close back up?" I ask : which gap ? and back to ... to where .... to what ....?

With all due respect to all / Noutram : I don't understand this gap-thing ! you all are talking about.

edit:
As for all daily global oilproduction there is always "a gap" between oil in progress/temp.stored oil and actual sold oil for thet very day. Today this gap is more than last summer. BUT that has nothing to do with this SUPPLY-DEMAND gap "we" are talking about , no ? In this case there is always a SUPPLY-DEMAND gap. Always.

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mididoctors on January 15, 2009 - 8:56am Permalink | Subthread | Parent | Comments top

at what point does tanker storage peak out?

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Azazel on January 16, 2009 - 7:57am Permalink | Subthread | Parent | Comments top

Oil is produced, stored, refined, transported and finally consumed by the end user. When production is greater than consumption by the end users, inventories rise. Excess quantities of oil on the market (that has to be stored somewhere) mean that current price does not clear the market and price is bound to fall given all other things being equal.

When inventories are falling, it means that production is less than consumption. Price again does not clear the market and is bound to rise, given all other things being equal.

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nkktwotwozero on January 14, 2009 - 4:29pm Permalink | Subthread | Parent | Comments top

westexas - When do you expect Mexico to stop exporting in today's environment? Matt Simmons has been saying that by the end of this year (2009) we should see little to no exports...

http://www.bloomberg.com/apps/news?pid=20601086&sid=aCH3J3wXRtcI

--

Dec. 22 (Bloomberg) -- Petroleos Mexicanos, the state-owned oil company, said crude oil output fell 6.5 percent in November from the year-earlier period as production at its Cantarell field declined at a faster-than-expected rate.

...

Oil exports fell 20 percent to 1.511 million barrels a day, according to a chart on Pemex’s Web site.

--

Seems to indicate exactly what you are talking about, exports declining much faster than production declines!

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westexas on January 14, 2009 - 5:07pm Permalink | Subthread | Parent | Comments top

I'm assuming some decline in consumption, which would stretch their net exports out a little longer. Note that Mexico both exports and imports refined product (they are a product importer on a net basis).

In any case, my estimate for Mexico for 2008 is for net exports of about 1.0 mbpd, versus 1.4 mbpd in 2007, and 1.9 mbpd in 2004.

My rough guess is that Mexico, by the end of 2009, will have (net) exported about 90% of their post-2004 cumulative net oil exports. Matt is putting it at 100%.

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steve from Virginia on January 15, 2009 - 1:40am Permalink | Subthread | Parent | Comments top

Hi, WT ... I agree, Cantarell and Gwahar are the ones to watch ... however, the next leg of deleveraging will commence shortly; I suspect this will center on state and local governments going belly up en masse. Sprawl is expensive and the states are going to find out the hard way the price tag on all that 'growth'. For the past few decades credit- inflated property values and state income tax receipts (on inflation) have generated the illusion of limitless real estate- derived prosperity. Exponential demand for government services has been part of that growth regime.

The illusion is now shattered. In stead of productive assets, the growth represents limitless liabilites!

A large part of state/local government expenditures is payroll. Employment will simply get crushed. Demand has a very long way to fall.

This next leg will require an additional $2 - 3 trillion bailout on top of the $8.5 trillion already on the table. This amount will keep schools open and some police on duty. At the same time it will be the end of the bond market as we know it. It will dawn on both American citizens the the chimps in government and business that this situaion is a) dire, b) not going to end by itself and allow the government and business to take credit, and c) light years/parsecs beyong the abilities of Manfred J. Obama & Co.

Obama does look good in a suit ...

As we all know, in a deflationary environment, products, services and assets ALL decline in price relative to currency or in this case, credit; the decline triggers unemployment as a consequence. In this environment, the unemployed have benefits but these are trifling and soon run out. To the penniless, nickel gas is out of reach.

My only hope is we get some good rock and roll out of all this crap. If we trade national bankruptcy and the impoverishment of millions for the end of rap, disco and 'smooth jazz' it will be a good trade! The other 'cachet' item I'm waiting for is the news that Ben Bernanke has thrown himself out a high window ... that I might live so long ...

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pi on January 15, 2009 - 3:57am Permalink | Subthread | Parent | Comments top

No no no--Bernanke has given up on helicopters and is taking sailing lessons and getting his new wooden sailboat ready for a nice loooong V-A-C-A-T-I-O-N!!

(I hope he reads TOD BTW!)

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indeolie on January 15, 2009 - 6:20am Permalink | Subthread | Parent | Comments top

end of rap, disco

Hello Grandpa!

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polytropos on January 14, 2009 - 7:34pm Permalink | Subthread | Parent | Comments top

WESTEXAS
you said
Assuming a current net export rate of 20 mbpd from the top five (versus 24 mbpd in 2005)

how did you arrive at that?
the data does not support it

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westexas on January 15, 2009 - 6:41am Permalink | Subthread | Parent | Comments top

The EIA showed 23.9 mbpd for 2005, 23.2 for 2006 and 22 for 2007. I estimated 22.5 for 2008, through 9/08. I was assuming around 20 currently based on voluntary + involuntary reductions in net exports.

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79 comments on Higher Inventories but Demand Drop Slowing?

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