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79 comments on Higher Inventories but Demand Drop Slowing?

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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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79 comments on Higher Inventories but Demand Drop Slowing?

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