[EdwinSm]

$this->bbcode_second_pass_quote('AdamB', '
')Oops.


We also need to discuss what to believe or not to believe, for example, Hubbert said the US should be producing 2 million a day right now. And we are doing 8+? Well, looks like we know who we should be paying attention INSTEAD of those who just fit random declines to stuff. Closer to correct by a factor of 4.....mmmmm......so much for bell shaped curves!

[AdamB]

$this->bbcode_second_pass_quote('EdwinSm', '')$this->bbcode_second_pass_quote('AdamB', '
')Oops.


We also need to discuss what to believe or not to believe, for example, Hubbert said the US should be producing 2 million a day right now. And we are doing 8+? Well, looks like we know who we should be paying attention INSTEAD of those who just fit random declines to stuff. Closer to correct by a factor of 4.....mmmmm......so much for bell shaped curves!

[AdamB]

$this->bbcode_second_pass_quote('', '
')
Gasoline prices haven’t gone up high enough in the U.S. to have any real impact on car buyers choosing more fuel-efficient vehicles. A university study reports that fuel economy in new vehicle purchases is staying flat this year. Average fuel economy (window-sticker value) of new vehicles sold in the U.S. was 25.3 mpg in September, according to University of Michigan’s Transportation Research Institute. It was unchanged from August and below the 25.5 mpg peak reached in August 2014. Average fuel economy for September has gone up 5.2 mpg since October 2007, the first month of the monitoring in the study led by the University of Michigan’s Brandon Schoettle and Michael Sivak. Gasoline and diesel prices have been affected by Hurricane Harvey and may see a similar trend coming from Hurricane Nate. Pump prices went up in late August and early September as Harvey ...

[AdamB]

$this->bbcode_second_pass_quote('', '
')
“Behold, there come seven years of great plenty throughout all the land of Egypt: and there shall arise after them seven years of famine; and all the plenty shall be forgotten.” In the Bible, Joseph was interpreting Pharaoh’s dream of seven fat and seven thin cows, but he might have been talking about the oil market (“Genesis”, chapter 41, verses 29-30). Just as Pharaoh’s kingdom experienced a cycle of feast and famine, depending on the Nile inundation, the oil market swings between periods of undersupply and oversupply. “The problem of oil is that there is always too much or too little,” as Myron Watkins, professor of economics at New York University, wrote 80 years ago (“Oil: stabilization or conservation?” Watkins, 1937). Ancient Egypt’s food supply was alternately plentiful or scarce, but only rarely “just enough”, which is why the state had granaries to store ...

[Tanada]

You betcha! Around Ohio prices for fuel the last two years have been consistently low and as a result people have consistently been buying or leasing more truck/SUV and less economy cars that sip fuel instead of gulping it down.

[AdamB]

$this->bbcode_second_pass_quote('Tanada', 'Y')ou betcha! Around Ohio prices for fuel the last two years have been consistently low and as a result people have consistently been buying or leasing more truck/SUV and less economy cars that sip fuel instead of gulping it down.

[vtsnowedin]

I see that the USA oil stockpile has declined by 90 million barrels sense last February so the surplus or glut if you will is fading away. The reduction in CAPex during the recent low prices should be working it's way through the system and result in a tightening supply next year and a boost in prices. The timing and extent of that is beyond my knowledge base.

[rockdoc123]

I spoke with a money management type recently. The view out there is that anything above $51.40 WTI is a buy signal and if it breaks through $52 it won't stop until $55 where the next resistance point is. Trump cancelling Iran deal may push it in that direction.

[Subjectivist]

$this->bbcode_second_pass_quote('vtsnowedin', 'I') see that the USA oil stockpile has declined by 90 million barrels sense last February so the surplus or glut if you will is fading away. The reduction in CAPex during the recent low prices should be working it's way through the system and result in a tightening supply next year and a boost in prices. The timing and extent of that is beyond my knowledge base.

[vtsnowedin]

$this->bbcode_second_pass_quote('Subjectivist', '')$this->bbcode_second_pass_quote('vtsnowedin', 'I') see that the USA oil stockpile has declined by 90 million barrels sense last February so the surplus or glut if you will is fading away. The reduction in CAPex during the recent low prices should be working it's way through the system and result in a tightening supply next year and a boost in prices. The timing and extent of that is beyond my knowledge base.

[Tanada]

Whether 90 or 113 is rather academic fellows, either way that is a substantial draw on stockpiles in nine months. The real issue is, are the draw downs accelerating, decreasing, or holding steady?

When we get down to hard numbers in 2016 the total inventory number only went down 3, from 2,010 in January to 2,007 in December 2016.

Compare that to 2015 when we started with 1,840 and finished with 2,000, a build of 160.

Compare those to 2014 we started with 1,749 and finished with 1,830, a build of 81.

BTW this year 2017 we started with 2,017 and are now at 1,965, down 52 MM/bbl by my math. On the other hand if you look at the data for this week in 2016 the number was 2,039 a drop of 74 YOY.

November 2014 was when the KSA declared they would be defending market share instead of price, 2015 was when the Fracking output of the USA hit its most recent peak production and 2016 was when KSA organized OPEC to try and maintain the $50/bbl price band instead of defending market share. The most recent stats from EIA put current total inventory at 1,965. While that is still a respectable shout above roughly 1,750 that is the normal inventory for January it isn't actually all that much of an extra buffer in a country that is consuming over 16 MM/bbl/d of crude oil. A couple more hurricanes and we could drop another 20 MM/bbl in a week. While Texas fracking production is once again on the rise thanks to the continued development in the Permian Basin the fracking in most other basins in the USA is simply going along at a very modest pace drilling out the known sweet spots with little in the way of wildcat drilling taking place like we had booming in 2013 and 2014 at the peak combination of fracking and oil price.

The shorter the time frame you look at the harder it is to determine if you have a trend or just an anomaly. It doesn't help that around August 2016 the EIA changed the formula for calculating total inventory so in a way we should probably ignore the numbers for 2016 unless a correction is made to them, which then begs the question should we correct all the numbers for 2014 and 2015 as well to get a true picture. Probably we should and if someone wants to do that math that would be great but I don't wish to dedicate the time doing so ATM. IIRC that correcting in on the close order of 30 MM/bbl either added to 2016-2017 numbers or subtracting the same from all 2014-2015 and January 2016 numbers to get a consistent data set. Realistically a 30 MM/bbl variance is not actually very significant so I more or less ignored it for my numbers above which I posted at the EIA stated value truncated at the decimal point. IMO anything past the decimal is silly claim at precision when we know the numbers have to have substantial multi million barrel corrections every few months.

Typically numbers build at this time of the year as refiners stockpile fuel for the winter season and those in the north start consuming that same fuel gradually as the weather cools. I have yet to activate my furnace this fall but I can't say the same for many of my neighbors and so far we are only going into the 50's F at night. Once we start regularly cooling into the 40's at night nearly everyone will be using their furnace to keep some of the chill off and once that happens stocks of propane and heating oil will start showing a drop. If this winter is harsh (NOAA is predicting a La Nina winter) then the draw on stocks will be substantial by January when we start with the new slate of numbers and even lower by April when heating season starts drawing to a close. This holds true for Natural Gas stocks as well but those are in a different category. Crude and Condensate are the source of heating oil and propane, but not Natural Gas.

[AdamB]

$this->bbcode_second_pass_quote('', '
')
A shift in most oil markets from contango to backwardation is changing the outlook for the global storage business World oil inventories are falling, and the two-year bonanza that handsomely rewarded oil-storage owners may well have run its course. After building through 2014 and 2016, commercial oil inventories in rich countries ended 2016 unchanged from a year earlier, and have since begun to draw, according to the International Energy Agency (IEA). The agency estimates that the second quarter saw a commercial year-on-year stock withdrawal of 9m barrels, compared with average increases of 45m barrels over the previous five years. This left stocks only 219m barrels over their five-year average, compared with over 330m barrels a year earlier. In its most recent market report, from September, the IEA calculated that OECD commercial stocks were unchanged in August—but, as this month typically sees a

[Tanada]

Pretty much what I have been posting here for a couple months. the Glut, she is abating, and far faster than most predicted would be the case.

[AdamB]

$this->bbcode_second_pass_quote('', '
')
Summary In this series of articles, we're summarizing the global oil situation as of Q3 and looking ahead. The continuing stock draws in crude and petroleum products are simply unsustainable and will lead to an oil price correction. Inventory declines have accelerated, and will continue unabated given increase in demand and underproduction. We recently provided a quarterly update for our fund's Limited Partners, and wanted to share some of our conclusions and thoughts as we head towards year-end. In the next series of articles, we'll provide excerpts of our findings and some additional insights. (Here's the links for all three parts: Part 1, Part 2 and Part 3) Today's Production Growth, or Lack Thereof Restrained growth may actually come just as oil inventories are approaching a deficit. Recall that the market's "lower for longer" oil thesis is predicated on US shale production growth. If this growth fails

[AdamB]

It should be noted that I am on the record (from maybe as far back as a year ago?) as referencing why the keystone cop thermo gang is wrong, and having enunciated the price path of oil of over time. It is nice to see that even bloggers can see this one coming, even if the random number generator gang cannot.

All together now! "The cure for low prices is.......<rousing chorus>.....low oil prices!!"

Between this and the corollary prediction for high oil prices, my model has worked every time throughout the entire history of the industry, irrespective of inflation, depressions, volumes, resource size, or any of the nonsense that some folks want to hang their answers on (including random number generators).

Just sayin...

[Tanada]

Yup. And if you compare this glut to say the 1986 glut you will see a somewhat familiar pattern. World oil supplies got tight. Major oil exporting countries decided to make a hefty profit on the tightness of the markets and restricted output to drive up prices to their benefit. (1979) The world responded by pushing development of the last three giant fields discovered outside the middle east in Alaska, Siberia and the North Sea. As these three sources began to produce large quantities of oil and make a nice profit for those countries that owned them Saudi Arabia opened up their export capacity to virtually double exports within a few months, flooding the world market, causing a glut and crashing the world price by over 50%.

A large number of marginally profitable oil schemes in the USA went bankrupt including the huge investments in kerogan extraction from the green river formation in the intermountain west of North America, the coal to liquids plant planned in North Dakota where the pilot plant was making synthetic oil from lignite and hundreds or thousands of stripper wells that were profitable before the glut but not after it began.

So in that earlier case Alaska, Siberia and the North Sea ended up selling the vast bulk of their oil at glut prices in 1987-2002 by which time all three regions had peaked out and were in steady decline. At that point world demand and declining production got the supply/demand system in a much tighter range and suddenly prices started recovering from their 15 years of glut lows.

This time KSA flooded the market in late 2014 but instead of the 15 year glut we got from 1987-2002 we got a glut in 2015-2017 and the rapid growth of world demand has brought us back into balance much more rapidly than the last time. Why? Because 1) A lot of places that were producing oil in volume in 1987 are either no longer producing or are producing a small fraction of what they were selling in 1987. Take both the North Sea and Alaska as examples of this. 2) world demand is much larger than it was in 1987, almost double in fact. This means it only takes a small percentage demand increase to have a large volume effect on the market.

Yup, the glut she is abating, and a heck of a lot sooner than most people predicted just a year ago when numbers like 2022 were bandied about, or never by the real cornucopians.

[tita]

$this->bbcode_second_pass_quote('Tanada', ' ') Why? Because 1) A lot of places that were producing oil in volume in 1987 are either no longer producing or are producing a small fraction of what they were selling in 1987. Take both the North Sea and Alaska as examples of this. 2) world demand is much larger than it was in 1987, almost double in fact. This means it only takes a small percentage demand increase to have a large volume effect on the market.

[Tanada]

$this->bbcode_second_pass_quote('tita', '')$this->bbcode_second_pass_quote('Tanada', ' ') Why? Because 1) A lot of places that were producing oil in volume in 1987 are either no longer producing or are producing a small fraction of what they were selling in 1987. Take both the North Sea and Alaska as examples of this. 2) world demand is much larger than it was in 1987, almost double in fact. This means it only takes a small percentage demand increase to have a large volume effect on the market.

[AdamB]

$this->bbcode_second_pass_quote('tita', '')$this->bbcode_second_pass_quote('Tanada', ' ') Why? Because 1) A lot of places that were producing oil in volume in 1987 are either no longer producing or are producing a small fraction of what they were selling in 1987. Take both the North Sea and Alaska as examples of this. 2) world demand is much larger than it was in 1987, almost double in fact. This means it only takes a small percentage demand increase to have a large volume effect on the market.

[Subjectivist]

$this->bbcode_second_pass_quote('AdamB', '')$this->bbcode_second_pass_quote('tita', '')$this->bbcode_second_pass_quote('Tanada', ' ') Why? Because 1) A lot of places that were producing oil in volume in 1987 are either no longer producing or are producing a small fraction of what they were selling in 1987. Take both the North Sea and Alaska as examples of this. 2) world demand is much larger than it was in 1987, almost double in fact. This means it only takes a small percentage demand increase to have a large volume effect on the market.