[Plantagenet]

A glut is defined as an oversupply big enough to cause a large price drop in a commodity.

Oil prices are down by 50%

Therefore we are in an oil glut

[ROCKMAN]

So a "glut" is defined by the price of oil and mot how much is being consumed. Apparently this glut isn't nearly as severe as when oil fell to $17/bbl in 1998. So does that mean we had an oil shortage in late 2004 when the price of oil increased 300% from '98 to $47/bbl? But then that led to an even greater shortage in late '08 when prices increased another 200% to $100/bbl. Bu then in early '09 we must have experienced a significant glut when oil fell $40.

Hmm...now I'm confused. How could $47/bbl in '04 be classified as a shortage and $50/bbl oil in early '09 be classified as a glut if it is the oil price that defines the dynamic?

[Pops]

Oil prices are driven in large part by shortage, risk of shortage, rumors of shortage, perceived risk of rumors of shortage, ...

Oil prices are hard to predict because human nature is unpredictable.

[ROCKMAN]

Pops - Exactly. That's why words such as "glut" and "shortage" are such loaded terms. They mean different dynamics o different people and thus have no clear definition. As you've pointed out the difference between demand and desire. Consider "shortage": is that having an abundance of a commodity available but unable to afford it. Or is it not being able to acquire the commodity even though you have the funds to purchase it? And "glut": there's so much of a commodity that anyone who wants it can afford to purchase it and there's still plenty left. Or is when there are few able to afford the commodity and thus much of it goes unused?

So given those possible definition how would folks here describe the current oil supply dynamic WITHOUT using one of those loaded terms? That way we'll know exactly how they interpret the situation. IMHO just using "glut", "shortage" etc. short hands is something of a cheap cop out.

[rockdoc123]

I think you are looking for a "one size fits all" definition for glut or shortage.
Seems to me that if there is more oil out there than people want to buy at this particular snapshot in time that is a glut. If there is not enough oil when people are screaming to buy it at this particular snapshot in time that is a shortage. There are a few reasons why either situation can arise.....a market collapse where people don't have the money to buy commodities, too much production when there just isn't enough demand, lack of investment so there is less oil available, lack of exploration success, a new paradigm (shale) that changes the supply side....I can probably come up with a bunch more.
I think the definition is just too much or too little and shouldn't have anything to do with the driving factors behind that situation as neither are not described by unique solutions. At least that's the way I see it.

[Nubs]

A question: It seems (to one like me who is rather poorly informed) that on a time scale of a few months the demand for oil is rather inflexible because the end user needs a predetermined amount of it right now, and the storage capacity is not great (less than a month of total consumption?), and this makes the price very sensitive to supply.

Does this make sense?

[Nubs]

A second question: If, as Rockman and others say, the storage capacity is only a couple of weeks, then why has the storage capacity not been increased?

Isn't there someone in the business who would benefit enough from a more constant price to foot the bill for increased storage? Oil refineries, perhaps?

[Pops]

Production is outpacing consumption, that used to be "normal" no we call it a "glut."

But again, the forecast is for production to outpace consumption for a while yet. That influences price as much as the balance right at this exact moment.

[ROCKMAN]

Doc - "Seems to me that if there is more oil out there than people want to buy at this particular snapshot in time that is a glut." I suspect that isn't what you meant to say: when has there ever been a time when there was more oil available then was WANTED? Yes: many periods when there was more oil production available the consumers could AFFORD.

So is there more oil available today then consumers can afford? Is there enough oil available to supply what consumers want? Or is the exact amount of amount of oil the consumers can afford being produced today?

[rockdoc123]

$this->bbcode_second_pass_quote('', 'S')o is there more oil available today then consumers can afford? Is there enough oil available to supply what consumers want? Or is the exact amount of amount of oil the consumers can afford being produced today?

[dinopello]

When inventory is building, it's a sign that you are producing at a rate higher than people are buying your product. That's OK, it's what warehouses or storage is for. I mean, you'd rather be selling rather than storing but t least you have somewhere to put the excess and while you may have pay to store product, it isn't dramatically affecting the price of the product. When all available storage is filled up and you have to sell your product for below cost then in my opinion you have a glut.

[ROCKMAN]

Nubs - "A second question: If, as Rockman and others say, the storage capacity is only a couple of weeks". First, there is no 'IF': these numbers are documented and take about 60 seconds on the web to verify. Second, don't get sucked in by all that headline BS about "surging" US oil storage. For more then 4 decades since the volume has been monitored oil stocks have not varied greatly. Don't take my word on it: take 30 seconds and check it out for yourself:

http://www.eia.gov/dnav/pet/hist/LeafHa ... rsfus1&f=a

In Nov 2014 we had less oil in storage then we did for much of 2012. Do you recall anyone hyping "surging oil storage" 3 years ago? And go back further in time: last Nov we only 13% more oil in storage then we had in MARCH 1981. Look at the yearly oil stock volume: fairly flat 1980 to 1995. And then prices slid own a bit and stocks stayed a bit lower and level from 1995 to 2005. And the oil prices increased and stocks averaged a bit higher. And it's too early to verify but with the oil price collapse there's a hint in the numbers that stocks might be starting on a decline slope.

And why not build more storage? No problem: get someone to loan you a $100 million so you can add a bunch and then hope like hell there's enough folks who will pay you to store their oil so you can to least meet your interest payments. Consider Cushing, Ok. Folks see it referenced but do they realize it's the largest oil storage facility on the planet? And trivia: the population of Cushing is only 2,000. And no: the SPR doesn't count because it's long term storage...not working storage. So what has happened to storage capacity at Cushing since prices began their run up: 26 million bbl in 2005 and 65 million bbls in 2012 with more than 125 new tanks planned or under construction that year. And the volume swelled at that time thanks to the surge in Canadian imports. But then new pipelines began moving oil out of Cushing to Texas refineries to the tune of more then 1 million bopd. And the value of much of that added storage capacity turned to crap. And yes: it was the coke point at Cushing that oil sands development and not the delay in the Keystone XL pipeline permit.

And don't get confused when some folks start mixing oil stock storage numbers with oil storage CAPACITY numbers: The onshore tanks are barely a third full, with less than 150 million barrels of the nation's total 439 million barrels of shell storage capacity occupied as recently as October, according to a Reuters analysis of U.S. data. That's by far the highest vacancy rate since the EIA began a bi-annual survey of tank farm capacity -- which exclude refinery stocks and oil in pipelines - in 2010. So there's almost 300 million bbls of oil storage sitting empty today. They don't need to build more storage.

So buy some oil, store it, sell it later at a higher price and make a nice profit. Or not: remember first, you have to buy the oil, then pay to ship it to storage, pay a monthly storage fee for as long as it sits there and then pay to ship it to the buyer. And probably have to pay a broker or two along the way. Which is why little oil isn't stored by investors: most is stored by physical oil users.

[Outcast_Searcher]

$this->bbcode_second_pass_quote('Paulo1', ' ')I can see if this window is lost, (which some will applaud until they face gas shortages for their Prius) ...

[Nubs]

$this->bbcode_second_pass_quote('ROCKMAN', ' ')...don't get confused...

[ROCKMAN]

Nubs - I know it's not easy given all the spin tossed out. I've got opinions like everyone else but I usually just try put out documented facts for folks to consider. Again look how the MSM has jumped all over this "highest oil stocks in 80 years" theme. They spin it as though this it is some tremendous change with earth shaking implications. Now you've seen the FACTS regarding the oil stock volume and storage capacity with currently utilization and can draw your own conclusions about the situation. My opinion? It don't mean sh*t. LOL. But, then again, it's not my job to fill up the 24-hour news cycle either.

[ROCKMAN]

Outcast - "How long since actual gasoline SHORTAGES in the US for any meaningful length of time?...My answer is not since the early 80's." Actually since WWII there has never been a shortage of gasoline in the US. The long gas lines back around 1980 was due to a distribution problem. The cause was documented some time later by the govt (which didn't care to advertise the fact too widely). In a panic Americans kept the fuel tanks much more full then they normally did. So those extra gallons per car X many millions of cars matched exactly the reserve drawdown by the refineries. It took months for them to rebuild inventory and thén...SHAZAM!...no more "shortage". LOL. As you pointed out there was no shortage during Katrina...just a distribution problem. Just as there was when tens of thousands of Houstonians had to sit out another hurricane on the highways out of town as their tank ran dry because the gas stations didn't hold enough to fuel a 150,000+ plus vehicles in less than 24 hours. And just as there was no propane shortage the winter when so many ran out during a nasty cold snap: folks didn't want to fill there home tanks up with more then they thought they would need. There was plenty of propane available but not enough trucks to meet the sudden demand.