Remember When We Were Running Out of Crude Oil Storage?

29 Comments on "Remember When We Were Running Out of Crude Oil Storage?"

rockman on Fri, 3rd Jul 2015 8:29 am 



Even though he’s try to paint a realistic picture he’s still being a tad optimistic IMHO: “While production is still rising”. According to the EIA: 3rd week of June: 9.604 mm bo. 4th week of June: 9.595 mm bo. Granted that’s not much a percentage drop: 0.09%. OTOH US oil production has essentially been flat since the 4th week in May moving up and down that same tiny percentage.

We still need to wait another 6 months or so to establish where the US oil production trend is going. But given that during 2014 US oil production increased 12% at the moment it doesn’t appear we’ll see that trend repeated this year.

And as always remember the lag time: most of the wells that increased US oil production during the first 5 months of 2015 were drilled prior to the collapse of the rig count. We are just on the cusp of seeing that effect on production.

RobertRapier on Sat, 4th Jul 2015 11:28 am 



Well, as I said we are having regular weekly declines, but the monthlies have still be rising. I expect the monthlies to turn down within the next few months though.

Nony on Sat, 4th Jul 2015 12:09 pm 



The weeklies are not reliable to judge off of:

1. They never revise the historical weeklies (up or down), so you can’t rely on week to week comparisons. Just as the last week as a point estimate. Note in contrast how the monthlies are updated for the back months, with more data.

2. It’s insane to judge a maximum based on a one week downturn. We’ve had many many one week downturns, the whole ramp up over the last 4 years. The monthlies are better, but even there, you can see that the last 4 years was non-monotonic growth.

—-

P.s. While I agree that the stories about $20 oil and running out of storage were silly, I think it was more relevant to rebut them by discussing the futures term structure, how that drove storage utilization (rather than looking at storage as the expected cause of future prices), and how the price of storage had changed. (Storage is tricky to get your hands on in terms of what exactly is needed for backup reliability, both in inventory and in free space. Plus there was a lot of storage going on at refineries, etc. that is not well tracked. But price at Cushing is a pretty good indicator for the US market for how much of a squeeze was on. More useful to just look at that rather than all the estimates if we were at 40% or 60% or what.) So I agree with RR (and did at the time), but I don’t think the call shows any special prescience. Nor, really new insights over what was in (some) other articles.

p.s.s. You can quantify what the market considers the odds of where oil will trade when. A 50-70 range is not a risky bet (meaning it is a good call, and not taking much risk of being disproved). See here, chart 7:

http://www.eia.gov/forecasts/steo/uncertainty/

There is also a funnel, showing how the upper and lower 95% CIs grow over time at the EIA STEO; won’t post the link because of spam guard. $20 is below the 95% lower CI even out as far as two years from now. Saying we won’t hit $20 is like saying the Redskins won’t win the Super Bowl next year. A very safe bet, with high odds (higher than 1 out of 32!).

p.s.s.s. RR is an amateur talking head and an Internet self-promoter. I probably agree with his opinions about 80%, but I just don’t think he’s that interesting as he wants to pat himself on the back for. John Kemp is a better analyst and more new insights and just cooler about how he presents himself. And he NAILED that price decline and how shale would cause it in his little stand-off with James Hamilton, another (unfortunately) slightly stuffed shirt.

P.s (however many “s”s)

And RR is far, far, far from a guy who does not say I told you so. He loves pushing his “how amazing I did on my predictions” schtick even though they are really pretty easy calls if you just look at futures odds or the like. (A strawman killer.)

Nony on Sat, 4th Jul 2015 5:11 pm 



Forget the mean remarks please

Apneaman on Sat, 4th Jul 2015 6:18 pm 



nony-marm, So you’re saying you value “interesting” and “cooler” above all else.

RobertRapier on Sat, 4th Jul 2015 6:36 pm 



I wondered if my favorite troll would show up. Always misleading. He writes:

“Saying we won’t hit $20 is like saying the Redskins won’t win the Super Bowl next year. A very safe bet, with high odds (higher than 1 out of 32!).”

That’s actually not what I predicted. In my January predictions, with oil at $47 and falling at a rate that would have taken it below $40 by the end of January, I predicted that the closing price of WTI would not break below $40. How safe was that bet? Well, in hindsight it was perfect. But that’s just the thing. People who like to talk about how easy predictions are are the ones who are putting theirs out there for public consumption. They are the Monday morning quarterback who never played football.

As far as “how amazing I did on my predictions” – I grade them at the end of the year. If I got them right, you say they were easy. If I say something that turns out to be wrong, you can’t get past it. But that’s kind of the way Monday morning quarterbacks play football. It looks easy from your Lazy Boy.

Nony on Sat, 4th Jul 2015 8:20 pm 



To start with, you ought to try evaluating yourself how easy or how hard they are, at the time that you make them. And I have called some of them easy after they were made, not before end of year. You really not to get over patting yourself on the back and just try to think and analyze and teach and communicate. For one thing, refer to the futures as the baseline.

Nony on Sat, 4th Jul 2015 8:24 pm 



For instance, in January, it was probably quantifiable (by options pricing) what the odds were for your not 40 prediction.

And it doesn’t matter how fast the price was dropping (really “had dropped”). There is no such thing as momentum for prices. There’s no inertia keeping a dropping price dropping. Read up on the most basic aspects of efficient market theory.

RobertRapier on Sat, 4th Jul 2015 8:41 pm 



Yet when I made that prediction, even many of the major brokerages were calling for sub-$40 oil. Of course all we have from you is 6 months of hindsight about how easy it might have been to make that call. Make some calls yourself. You probably saw them all when I made them. I should dig that thread up and see what you said about it then. I am sure you saw it. Surely if any looked too easy at the time you would have mentioned it, and not waited.

So you really think predicting oil wouldn’t hit $40 was a safe prediction? All I have to say to you is make some yourself then instead of telling people how easy they were 6 months or a year after they are made.

RobertRapier on Sat, 4th Jul 2015 8:45 pm 



Well, I found it and you were mum on it at the time. Too bad. We might have had some validation about which ones were easy. The person who did comment said 3 were easy, and yet 2 are pretty wrong at this point. Not so easy, eh? Too bad you didn’t document the ones you thought were no-brainers when you had the chance:

http://peakoil.com/generalideas/robert-rapier-my-2015-energy-predictions

Nony on Sat, 4th Jul 2015 8:55 pm 



Here is the JAN15 STEO

http://www.eia.gov/forecasts/steo/uncertainty/pdf/jan15_uncertainty.pdf

Note that it was well described that the market was in contango over the calander year (i.e. the baseline should be an expectation of price going up from JAN to DEC).

I don’t know the exact wording of your 40 prediction (you care way more about touting your predictions than I do about testing them). If you said price would never get below 40 (for a second) in the year, that is bolder than saying end of year would be above 40. IOW, the exact wording of the prediction creates an implicit mathematical probability. But my point is not solely about whether the predictions are better than a naïve market guess. It’s that you don’t even think or discuss them properly. It’s like someone saying the slops tank with the sunk roof has some thick gunk in it…but it will make good product. Go run the freaking simulated distillation curve…not talk about thick gunk.

These are actually CALCULATABLE using traded options. See Figure 7 for instance. (And yes, probably not the exact structure of your prediction, but shows the concept of how to think about it.)

I think you had one a year or two ago where your bold prediction was something like average gas price would be higher that year than the year before (maybe 2013 versus 2012). This is clearly something where the futures curve can say if the prediction is bold or trivial.

RobertRapier on Sat, 4th Jul 2015 9:03 pm 



I notice you were also silent when my previous article on crude oil storage was published here. Maybe you don’t like to criticize predictions until it’s obvious what the answer is?

http://peakoil.com/consumption/robert-rapier-is-the-u-s-running-out-of-crude-oil-storage

RobertRapier on Sat, 4th Jul 2015 9:07 pm 



“IOW, the exact wording of the prediction creates an implicit mathematical probability.”

Ha!Ha! If it was that easy, everyone would be rich. If it was that easy, why were brokerages predicting sub-$40 oil. Can’t they do math?

“It’s that you don’t even think or discuss them properly.”

You just said you don’t even know the wording of my prediction. Now you want to suggest I don’t discuss them properly? You are a piece of work. OK, I will await your lesson. Point me to where your work is archived so I may learn how to properly discuss predictions by watching you in action.

Nony on Sat, 4th Jul 2015 9:10 pm 



“Yet when I made that prediction, even many of the major brokerages were calling for sub-$40 oil.”

Who the freak cares what “major brokerages are saying”. I know you have to dumb it down when you go on RT or MSNBC, but please don’t BE DUMB. If you have to choose between making a bet based on the cold hard market currently traded price…or some yahoo at Goldman Sucks, which do you choose? I’ll tell you what…there own traders care a lot more about the futures term structure than what their own yahoos are saying. I mean…do you bet with the Vegas point spread (the market that has people on either side of the trade) or some yahoo with a tout sheet.

“Of course all we have from you is 6 months of hindsight about how easy it might have been to make that call.”

I made the comment in the spring…and I’m definitely to lazy to see when I said it. And it’s not just one prediction…it’s your general pattern. I mean, predictint that 2013 would have higher average gas price than 2012 is something you CAN check from the futures market. It’s probably NOT a massive step out on the branch to say prices will be higher the next year after a year where we had a super mild winter.

“Make some calls yourself.”

I’m not into it. I’m into thinking. Finding insights. Ways to dissect things. Besides, I’ll do what I want.

“You probably saw them all when I made them. I should dig that thread up and see what you said about it then. I am sure you saw it. Surely if any looked too easy at the time you would have mentioned it, and not waited.”

Go dig. I am way too lazy to do so. (That should show you how much I care.) I think if anything, I had something to the effect of saying that you put a lot more self-vanity into your predictions than I could care about them. Think I told you truthfully that I had not been reading your column in JAN14. You have a higher impression of your importance than I do.

“So you really think predicting oil wouldn’t hit $40 was a safe prediction?”

If you said it would never hit 40 within the year, that might have been a bold prediction. If you said year end, than that was not bold. For the former, to tell if it was bold, we would have to look at the options. It’s probably describable as some funky integral of a probability curve.

“All I have to say to you is make some yourself then instead of telling people how easy they were 6 months or a year after they are made.”

No. This is America, I can make comments on the Internet. Besides, there’s actually a lot of useful insights from negative dissection from people who don’t do complete studies.

Nony on Sat, 4th Jul 2015 9:11 pm 



Jan15, I mean.

Nony on Sat, 4th Jul 2015 9:15 pm 



“I notice you were also silent when my previous article on crude oil storage was published here. Maybe you don’t like to criticize predictions until it’s obvious what the answer is?”

I don’t remember ducking anything. I probably missed it.

Apneaman on Sat, 4th Jul 2015 9:15 pm 



Nony marm you’re kinda babbling again. Better get that Adderal Rx refilled………… and soon.

RobertRapier on Sat, 4th Jul 2015 9:21 pm 



“If you said it would never hit 40 within the year, that might have been a bold prediction.”

I said it would never close below $40 this year. So you don’t know the wording of the prediction or the text that went with it, but you have criticized both. Some insight you have. And you are certainly expending a lot of words if you don’t care about it.

“I mean, predictint that 2013 would have higher average gas price than 2012 is something you CAN check from the futures market.”

The futures markets change every day. History doesn’t play out according to the futures markets. If so, oil wouldn’t have hit $147 or the $30s in 2008, and it wouldn’t have crashed last year. The futures market at the beginning of the year didn’t predict that.

“This is America, I can make comments on the Internet.”

You are in Canada, no? Yes, I know it’s North America, but most Canadians don’t say “This is America.”

“Think I told you truthfully that I had not been reading your column in JAN14.”

Try to keep up. We are talking about January 2015 now. You were commenting furiously on my columns long before then. So it looks from here like you are just a troll who shows up at the end of the game to tell us you could have coached it better.

“You have a higher impression of your importance than I do.

Really? You have spent far more words talking about me on this board than I have spent talking about you. I think you have a man crush.

Nony on Sat, 4th Jul 2015 9:23 pm 



“Well, I found it and you were mum on it at the time. Too bad.”

You brought it up at some other thread, I think, like as if I were supposed to know about it. Maybe a really old one, that you commented to, late. We had the back and forth where I said you were big with the ladies.

I don’t really read your site much any more (no offense, it’s fine…just infrequent updates). As for this site, I tried doing a NYR not to post on the Internet, so I missed a lot in the year beginning until I fell off the wagon. Probably didn’t even read a lot, since one tends to read less when one comments less (Internet is very participatory.)

RobertRapier on Sat, 4th Jul 2015 9:35 pm 



“You brought it up at some other thread, I think, like as if I were supposed to know about it.”

Yet you seem to know all about them when it comes time to grade them. It’s funny how obvious they are as more time goes by. But people actually argue and debate them at the time they are made. You never get a consensus “no-brainer” until way after the fact. “Sure, that was a no-brainer” said the guy in November about the prediction that was made in January.

Nony on Sat, 4th Jul 2015 9:36 pm 



“I said it would never close below $40 this year. So you don’t know the wording of the prediction or the text that went with it, but you have criticized both. Some insight you have. And you are certainly expending a lot of words if you don’t care about it.”

I have acknowledged from the very start, even earlier this year, that I did not read your JAN15 predictions in detail. I’m not into critizing this particular statement, but your general tendancy. In fact, if this one was bold, I want to give you credit it for it.

“The futures markets change every day.”

You judge the prediction based off of the futures market at the time when you made the prediction. This is trading 101. If you put money on it at the time, that is what would determine the odds.

“History doesn’t play out according to the futures markets. If so, oil wouldn’t have hit $147 or the $30s in 2008, and it wouldn’t have crashed last year. The futures market at the beginning of the year didn’t predict that.”

Irrelevant. We are discussing what the informed prior should be in a Bayesian prediction.

“Try to keep up. We are talking about January 2015 now.”

14 was a typo.

“You were commenting furiously on my columns long before then. So it looks from here like you are just a troll who shows up at the end of the game to tell us you could have coached it better.”

I don’t even understand the point here…not even saying I disagree with you.

“Really? You have spent far more words talking about me on this board than I have spent talking about you. I think you have a man crush.”
It’s more a failing of wanting to pin things down and to disaggregate issues than of being so super fascinated.
The ladies man stuff was just to keep it light. Don’t worry…I’m not dreaming gay dreams of you. I was truthful when I said I stopped reading the Rsq blog. I didn’t mean it to be super cutting. Just, it’s a free country and reading the Internet is a diversion that is unpaid. I read what interests me. Enjoyed it at first, but got bored because not that much going up.

Nony on Sat, 4th Jul 2015 9:39 pm 



“Yet you seem to know all about them when it comes time to grade them. It’s funny how obvious they are as more time goes by. But people actually argue and debate them at the time they are made. You never get a consensus “no-brainer” until way after the fact. “Sure, that was a no-brainer” said the guy in November about the prediction that was made in January.”

I think it’s fair to say that a prediction of higher average gas prices is not “out there” if made when the year forward futures curve shows higher average gas prices. And to do so in retrospect (looking at what futures curve was at that time).

RobertRapier on Sat, 4th Jul 2015 9:48 pm 



“You judge the prediction based off of the futures market at the time when you made the prediction. ”

So we make predictions, and immediately judge them? That makes it pretty easy. Look at the definition of the futures curve, make your prediction, and then you instantly know whether it was correct. But it makes me wonder why there are always informed people predicting the opposite of what I predict.

“I’m not into critizing this particular statement, but your general tendancy. In fact, if this one was bold, I want to give you credit it for it.”

Don’t think. Know. It’s there. Documented. You did say I don’t discuss my predictions properly, yet you don’t even know what I predicted or what I said along with the prediction. You sure have a lot of opinions for someone who doesn’t bother to gather much information to support them.

“I’m not dreaming gay dreams of you.”

It’s OK, I don’t judge. But that’s your business.

I have to go celebrate freedom now by blowing things up.

Apneaman on Sat, 4th Jul 2015 9:51 pm 



Robert, what nony marm really means when he says “I tried doing a NYR not to post on the Internet, so I missed a lot in the year beginning until I fell off the wagon.” is that when the prices tanked, well before the new year, he freaked out for a week or two like a raving lunatic and disappeared for a few months – off to cornucopia rehab. He has been back for a while now – fully recovered and more assured, but just as full of it, as ever.

Nony on Sat, 4th Jul 2015 9:59 pm 



[from up thread]

“Ha!Ha! If it was that easy, everyone would be rich. If it was that easy, ”

See the STEO confidence interval charts. I’m not saying it’s “easy” like first year algebra. But it’s definitely very conventional options pricing calculations.

And FWIW, it doesn’t matter how hard it is per everyone getting rich, because well traded markets will already have people who can price the options properly with this insight.

“why were brokerages predicting sub-$40 oil. Can’t they do math?”

I already said that that is just BS for the airwaves. What matters is what the market says, much more than some stuffed head on MSNBC. Do you think people making trades make them to refer to some dunderhead on MSNBC or versus the futures market? Look at the JAN15 STEO…they noted the contango. It was very well reported in the popular press also.

“You just said you don’t even know the wording of my prediction. Now you want to suggest I don’t discuss them properly?”

Yes. I’ve seen enough. I don’t have to know exact detail of every single prediction you’ve made to make the general point I’m making.

“You are a piece of work. OK, I will await your lesson. Point me to where your work is archived so I may learn how to properly discuss predictions by watching you in action.”

I already showed you the key concept. Let me try again. Look at the three green lines in the first chart in the linked document. Do you see how that gives you a probability?

http://www.eia.gov/forecasts/steo/pdf/steo_charts.pdf

Nony on Sat, 4th Jul 2015 10:14 pm 



“So we make predictions, and immediately judge them? That makes it pretty easy. Look at the definition of the futures curve, make your prediction, and then you instantly know whether it was correct. But it makes me wonder why there are always informed people predicting the opposite of what I predict.”

You know whether it is bold or not. Let’s say the median rainfall in your town is 50 inches per year. If you tell someone, “I think we will have over 30 inches if rain” that is a very sound, safe prediction. It’s not teribbly bold though. And if you bet on it, you should expect to give odds, rather than get odds. Capisce?

Also, it could still be an interesting statement. Maybe you have some hometown weather model and you want to share that it gave this prediction. Well…it is much more helpful to your audience to give your prediction along with sharing what the average rainfall is for the last several years. It teaches them something else…and it makes the 30 number mean more because it has a scale of reference.

Consider someone like Kopits predicting $85 at year end. Implicitly saying that is his median estimate He knows the futures term structure for DEC15. It was like 65 when he made the comment. That’s a bold prediction. If somebody trades on his insights, they will GET odds. Probably 4:1 or so. So talking about things in reference to the futures curve has value.

RobertRapier on Sat, 4th Jul 2015 10:58 pm 



“Do you think people making trades make them to refer to some dunderhead on MSNBC or versus the futures market?”

When Goldman Sachs is predicting oil will fall below $40, that’s how they are advising clients. Clearly they weren’t getting the same insight from the futures curves.

“Look at the three green lines in the first chart in the linked document. Do you see how that gives you a probability?”

Yeah. I am well aware of that. So if I predict that oil will average somewhere between $40 and $100/bbl, that’s a pretty good bet. What I said — in January when the 95% confidence level on that curve did dip below $40 — was that it wouldn’t close below $40. I also predicted that the average closing price would be above $60. At that time every month on the futures curve was below $60. That 2nd prediction is looking pretty shaky right now, yet that’s one that someone else in January called a “no-brainer.”

But then you wouldn’t know, because you are critiquing my predictions without having actually looked at them.

Nony on Sun, 5th Jul 2015 5:47 am 



A. If I had two sources of information,

(a) market pricing for the current and futures and the put/call options (reflecting the distilled “bets” of all the market participants, hedge funds, quants, etc. or…

(b) all the public statements of Goldman, McKinsey, the EIA, RR, and even I’ll even throw in some sooper seekrit paid for advice for clients tout sheets…

it is a no brainer which I would choose. And a trader at Goldman would make the same call. Do you really think that fluff talk on MSNBC or RT is useful? “Calling bottoms” or “catching knives”? What a freaking joke.

B. Actually the funnel won’t exactly tell us the odds for whether your 40 call was non-trivial (less than 50% likelihood). I was more just trying to show the general concept that looking at puts and calls will give you the odds of a price occurring. It’s actually a little bit of a complicated proposition to say that a price will never have a daily close over a year at a certain level.

C. FWIW, not sure why that is even such a useful quantity, though (the “never close below” level). For one thing, it combines predictions of trend and volatility. Wouldn’t predicting the average price for the year or the closing price a year hence, be more meaningful micro-economically?

Boat on Sun, 5th Jul 2015 6:08 am 



Rock ..

And as always remember the lag time: most of the wells that increased US oil production during the first 5 months of 2015 were drilled prior to the collapse of the rig count. We are just on the cusp of seeing that effect on production.ck,

I read there is as much as 2 mbpd in excess global oil production. Are not tar sands, arctic drilling and deep water drilling more expensive than the frackers still drilling today.

I just don’t see 2 mbpd lost in fracked oil even a year from now.