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How the price of oil MIGHT drop later in the week.

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How the price of oil MIGHT drop later in the week.

Unread postby firestarter » Mon 17 Apr 2006, 21:20:36

I've been trying to square America's approx 4 million barrel inventory build in crude with the subsequent rising $ of oil worldwide. I understand that there's obviously much more to price dynamics than what happens in America. Nevertheless, I don't see at present any supply shortages in crude here in the states, what with the previous weeks not so small inventory builds.

Fact: About 47 barrels of gasoline are produced from every 100 barrels of crude oil processed at U. S. refineries. About 19 gallons of gasoline is produced per barrel. With a build of 4 million barrels of crude last week, 2 million of that would have been converted to gasoline product (if not for the refinery bottleneck). Gasoline inventories had a draw of about 3.5 million barrels.

The question then is, how many gallons of gasoline can be produced ( absent any bottleneck, or capacity limitatiions at the refining stage) from 2 million barrels of oil?



2,000,000 (barrels oil) x 19 (gallons of gasoline per barrel of oil)=

38,000,000 gallons of gasoline possible.



Thus, no gasoline inventory draw needed (at least for last week). In short, there's no shortage of oil, even with 100% production of the targeted 2 million barrels of oil into gasoline, which probably isn't possible even if refineries were at 96%.


I know this is only a singular point in time, but it does suggest that oil's price is less predicated on fundamentals of supply and demand, and more influenced by geopolitical considerations, which of course matters, but could allow for at least a temporary reprieve in price acceleration, especially if Iran and the US cools their rhetoric.
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Re: How the price of oil MIGHT drop later in the week.

Unread postby eastbay » Mon 17 Apr 2006, 21:27:30

Much of the recent run-up in oil prices is due to the FEAR that there MAY be shortages in the coming weeks and months due to geopolitical concerns the nature of which we are all well aware.

Basically right now we're paying an oil tax on the foreign policy decisions of the current US administration.
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Re: How the price of oil MIGHT drop later in the week.

Unread postby Grimnir » Mon 17 Apr 2006, 21:51:07

Wouldn't the process of acquiring a large inventory drive up the price?
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Re: How the price of oil MIGHT drop later in the week.

Unread postby oilluber » Mon 17 Apr 2006, 21:58:17

$this->bbcode_second_pass_quote('firestarter', 'I')'ve been trying to square America's approx 4 million barrel inventory build in crude with the subsequent rising $ of oil worldwide. I understand that there's obviously much more to price dynamics than what happens in America. Nevertheless, I don't see at present any supply shortages in crude here in the states, what with the previous weeks not so small inventory builds.

Fact: About 47 barrels of gasoline are produced from every 100 barrels of crude oil processed at U. S. refineries. About 19 gallons of gasoline is produced per barrel. With a build of 4 million barrels of crude last week, 2 million of that would have been converted to gasoline product (if not for the refinery bottleneck). Gasoline inventories had a draw of about 3.5 million barrels.

The question then is, how many gallons of gasoline can be produced ( absent any bottleneck, or capacity limitatiions at the refining stage) from 2 million barrels of oil?



2,000,000 (barrels oil) x 19 (gallons of gasoline per barrel of oil)=

38,000,000 gallons of gasoline possible.



Thus, no gasoline inventory draw needed (at least for last week). In short, there's no shortage of oil, even with 100% production of the targeted 2 million barrels of oil into gasoline, which probably isn't possible even if refineries were at 96%.


I know this is only a singular point in time, but it does suggest that oil's price is less predicated on fundamentals of supply and demand, and more influenced by geopolitical considerations, which of course matters, but could allow for at least a temporary reprieve in price acceleration, especially if Iran and the US cools their rhetoric.


go take $100k and play the futures market and see if your theory
is correct.
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Re: How the price of oil MIGHT drop later in the week.

Unread postby pup55 » Mon 17 Apr 2006, 22:15:04

$this->bbcode_second_pass_quote('', 'n')o gasoline inventory draw needed (at least for last week


I am already on record saying that the inventory draw will be more like 3.8-4.2 mmbbl.

Here is the basis for this prediction:

Beginning Inventory: 207.9
Imports 7.7
Production: 59.5 (8.5 mmbbl per day, about 86-87% of capacity
Inventory available: 275.1
Consumption 10.2 mmbbl per day or 71.4 mmbbl
net inventory: 203.7

a drop of 4.2 mmbbl, mainly due to refineries not starting up on time. Remeber that the four week averages appear in the weekly report, so even if the refineries all cranked up last week, which they did not, only 1/4 of the increased production will appear on this week's report.

A year ago, refineries were running at 92% during this time frame.

The only thing I am a little hazy on is the consumption, which has been running closer to 9.8 mmbbl/day, typically, but I think that the warmer weather will bring out a lot of drivers this week. If I am off by 2.8 mmbbl, it's because my consumption number is high.
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Re: How the price of oil MIGHT drop later in the week.

Unread postby DantesPeak » Mon 17 Apr 2006, 22:24:48

I mentioned a week ago that the new oil ETF (symbol USO) will bring new buyers to the oil market and, indirectly, inventories will rise because of the new buyers. Granted this is done through the futures market, but futures have shown a close relationship to the cash market.

This was preceded by another similar commodity fund and other types of commodity funds investing at least partially in oil.

It's just getting going, so the effect on inventories the next few weeks is not large - but growing.
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Re: How the price of oil MIGHT drop later in the week.

Unread postby firestarter » Mon 17 Apr 2006, 22:32:35

$this->bbcode_second_pass_quote('pup55', 'T')he only thing I am a little hazy on is the consumption, which has been running closer to 9.8 mmbbl/day, typically, but I think that the warmer weather will bring out a lot of drivers this week. If I am off by 2.8 mmbbl, it's because my consumption number is high.


You don't see any significant demand destruction yet? I sure heard a lot of bitching from neighbors over Easter break because of the high prices. I even cancelled my 300 mile, round trip holiday journey mainly because of gas price. Was I alone?

Do you think there will be another build in crude this week? If so, how much?
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Re: How the price of oil MIGHT drop later in the week.

Unread postby MOCKBA » Mon 17 Apr 2006, 22:42:32

$this->bbcode_second_pass_quote('firestarter', '
')I know this is only a singular point in time, but it does suggest that oil's price is less predicated on fundamentals of supply and demand, and more influenced by geopolitical considerations, which of course matters, but could allow for at least a temporary reprieve in price acceleration, especially if Iran and the US cools their rhetoric.


The meeting in Moscow would be very interesting from price of a barrel perspective.

If Russia would come out with any inclination towards UN sanctions (mind that they cannot support it out right for they would be loosing their face, so the best (or the worst) they could say is that they wouldn't mind not vetoing) that would mean that communications between Iran and Russia are lost and Russia would have very little to gain and everything to loose in not supporting UN actions. This would mean that Iran would be blockaded and in turn that would mean that Europe would have to live on North Sea and Russian exports for a while. Brent passing $80 perhaps? and definitely no imports from Europe and possibly exports to Europe from Americas. WTI would lag and could spread to $5 if Brent would go higher then $80. Reason? US could get by for a while on American imports and SPR.

If Russia would be firm on continuing negotiation with Iran that would mean that US and Europe would pay subsidies for Iran nuclear fuel made in Russia bellow market in exchange for Iran stopping development of full nuclear cycle (this worked with Ukraine nuclear ambititon) and this would mean that the war and the blockade would be avoided. Thus in this case WTI would get back to low 60ies and perhaps even bellow $60 like it did back in March.

From economic perspective they better decide before summer what to do with Iran, otherwise it would be more painful, but I believe they very well aware of this.
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Re: How the price of oil MIGHT drop later in the week.

Unread postby joewp » Mon 17 Apr 2006, 22:51:38

$this->bbcode_second_pass_quote('firestarter', '
')You don't see any significant demand destruction yet? I sure heard a lot of bitching from neighbors over Easter break because of the high prices. I even cancelled my 300 mile, round trip holiday journey mainly because of gas price. Was I alone?

Do you think there will be another build in crude this week? If so, how much?


I don't see much demand destruction around my central NJ area. I have a series of polls on a local message board and so far it seems that the vast majority of driving done is necessary, either for work or grocery shopping. Your 300 mile cancelled trip is negated by the new neighbors I have who drive 600 miles or more a week back and forth to work. People forget that this entire housing boom in the US is in exurbia, far away from the high-paying jobs that fund it. People are going to continue to drive for quite a while when it's their livelyhood on the line. I think almost 90% of US gasoline demand is inelastic at prices up to and beyond $5.00/gallon.

Certainly not without a lot of bitching, of course! :P
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Re: How the price of oil MIGHT drop later in the week.

Unread postby Typhoon » Mon 17 Apr 2006, 23:06:06

$this->bbcode_second_pass_quote('firestarter', '
')2,000,000 (barrels oil) x 19 (gallons of gasoline per barrel of oil)=

38,000,000 gallons of gasoline possible.


38,000,000 gallons of gasoline is roughly 905,000 barrels. We definitely would have still had a decline in gasoline inventories even if the entire excess of crude oil was refined. However, a few of the numbers you used are incorrect.

Your calculation should have been 3.2 million barrels of oil * 19 gallons of gasoline per barrel = 60.8 million gallons (1.45 million barrels) of gasoline. The gasoline inventory draw was 3.9 million barrels, meaning that even if the entire excess of crude oil could have been refined, we would have still had a 2.45 million barrel decline in gasoline inventories.

I agree that the market seems well supplied at the moment, and that there is a significant fear premium in the price of oil. Indeed, U.S. total net imports are up 1.3% year-over-year. However, your conclusion that gasoline inventories would not have declined had the extra crude been refined is incorrect.
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Re: How the price of oil MIGHT drop later in the week.

Unread postby firestarter » Mon 17 Apr 2006, 23:07:37

$this->bbcode_second_pass_quote('joewp', ' ')I think almost 90% of US gasoline demand is inelastic at prices up to and beyond $5.00/gallon.



That's the other reason they were bitching--because they're trapped in their living arrangements, with no easy way out.
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Re: How the price of oil MIGHT drop later in the week.

Unread postby firestarter » Mon 17 Apr 2006, 23:21:17

$this->bbcode_second_pass_quote('Typhoon', '')$this->bbcode_second_pass_quote('firestarter', '
')2,000,000 (barrels oil) x 19 (gallons of gasoline per barrel of oil)=

38,000,000 gallons of gasoline possible.


38,000,000 gallons of gasoline is roughly 905,000 barrels. We definitely would have still had a decline in gasoline inventories even if the entire excess of crude oil was refined. However, a few of the numbers you used are incorrect.

Your calculation should have been 3.2 million barrels of oil * 19 gallons of gasoline per barrel = 60.8 million gallons (1.45 million barrels) of gasoline. The gasoline inventory draw was 3.9 million barrels, meaning that even if the entire excess of crude oil could have been refined, we would have still had a 2.45 million barrel decline in gasoline inventories.

I agree that the market seems well supplied at the moment, and that there is a significant fear premium in the price of oil. Indeed, U.S. total net imports are up 1.3% year-over-year. However, your conclusion that gasoline inventories would not have declined had the extra crude been refined is incorrect.



You're correct, Typhoon, I substituted gallons for barrels. I'm glad I didn't gamble the $100k.

Cancel my temporary snaguine price sentiments.
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Re: How the price of oil MIGHT drop later in the week.

Unread postby MOCKBA » Mon 17 Apr 2006, 23:50:18

$this->bbcode_second_pass_quote('firestarter', '
')You don't see any significant demand destruction yet? I sure heard a lot of bitching from neighbors over Easter break because of the high prices. I even cancelled my 300 mile, round trip holiday journey mainly because of gas price. Was I alone?


About the same time last year I realised that $2 gas is relatively quite cheap despite that it is almost twice the $1 gas I get used to. So I told my wife that we should be driving and not paying much attention to what they display at the pump. So driving we did. I remember last summer going to the lake almost every weekend (100 miles or so over the weekend) and we went on 2000+ miles camping trip to Florida. I don't recall doing anything like that in 2004, not that I have bad memory, but simply because we just didn't do it.

So as the New Year approached I was very currious to see how much money we spent on gas in 2005 and how would that compare to 2004. Thanks to Quicken it was very easy to find out.

I was on for a huge surprise! Despite all the driving we did in 2005, we spent the same amount of money on gas rounded to a hundred. And the gas was 30% more expensive and I encouraged doing the driving while we still could enjoy it. The only thing that this could mean is that we used less gas!

That puzzled me for most of January, but then I came to realise that most likely we subconsciously cut on un-neccessary driving, like going to groceries less often and buying more in one trip or planing several errands in one trip, etc. I would like to stress that we did it subconsciously because I only encouraged driving.

Another reason that I could partially back up by odometer reading is that I was driving my BMW (27mpg) more then my Mustang (22mpg). This was again subconsciously because I do love my cars equaly and get kicks from both BMW handling and Mustang raw power (to be entirely accurate I preffered to drive BMW to work in 2005 because I had to park in the open and Mustang is a convertable, while in 2004 I had covered parking). Still, even if the reason I burned less gas in 2005 is because I drove more miles per gallon, my numbers shows that how much difference 5 mpg could do. Mind it all was done subconsciously.

Finally, in 2005 my job was about 2-5 miles less of a commute (22 miles roundtrip vs. about 27), but since I could come and go pretty much anytime I please, I shifted my schedule a bit and try to spend as little time in traffic as possible. I believe this contributed more to burning less gas then 2-5 less miles in dayly commute.

So the moral of my story... When gas would hit $4, US could easily get by on 9 mb or slightly less and it would happen all by itself - naturally or even subconsciously. It would take mere replacement of SUV with small Hondas and Toyotas which would happen again naturally as filling up those SUV would become painful.

On another note, I do have an option of using public transportation to commute to work. I did consider it right after Katrina, but so far it didn't enter into play. I might consider it again when gas is above $4, but then again, may be $4 gas would make me convince my wife that riding a motorcycle is safe. Bring on $4 gas, I miss riding my motorcycle!
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Re: How the price of oil MIGHT drop later in the week.

Unread postby Eli » Tue 18 Apr 2006, 00:09:27

$this->bbcode_second_pass_quote('', '
')
You don't see any significant demand destruction yet? I sure heard a lot of bitching from neighbors over Easter break because of the high prices. I even cancelled my 300 mile, round trip holiday journey mainly because of gas price. Was I alone?

Do you think there will be another build in crude this week? If so, how much?


I think that is all you will hear for awhile, just people bitching with gas at 3.00 bucks a gallon. People will piss and moan about it a lot but still drive.

4.00 a gallon and I think people will freak out. Economically at 4.00 a gallon the US would still function to a large degree but I think people would start to take a hard look at there life style at that point and seriously change their habits and spending.

And of course if we have a another war or more hurricanes heading anywhere close to Houston all bets are off.
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Re: How the price of oil MIGHT drop later in the week.

Unread postby joewp » Tue 18 Apr 2006, 00:20:17

$this->bbcode_second_pass_quote('Eli', '
')4.00 a gallon and I think people will freak out. Economically at 4.00 a gallon the US would still function to a large degree but I think people would start to take a hard look at there life style at that point and seriously change their habits and spending.


Eli, a poll I just posted on my local message board in central NJ that addresses this exact issue, at what price do you start to make changes in your lifestyle. After finding out that about 40% drove more than 30 miles one way to work each day in a previous poll, I'm thinking that $10/gallon won't be a problem for them, they have to work, and the jobs that pay enough to pay the mortgage and taxes on the huge McMansions around here are way far away, much of which is a car-only commute. They'll cut back on other stuff first, I'm sure. I'll post the poll results next week. I think people here will be surprised at how much exurbia will pay for energy.
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Re: How the price of oil MIGHT drop later in the week.

Unread postby highfructose » Tue 18 Apr 2006, 01:00:30

It seemed like oil would fall back down to its trend line and not be able to break 69-70. However, since it did break 70 there might be some additional upside to this run upwards. I bought back into some oil stocks. It still has to clear 71 to exceed last year's peak to better confirm this run still has legs. If it can't this could be the peak and it'll fall back to its trend line.
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Re: How the price of oil MIGHT drop later in the week.

Unread postby jdmartin » Tue 18 Apr 2006, 11:11:17

$this->bbcode_second_pass_quote('joewp', '')$this->bbcode_second_pass_quote('Eli', '
')4.00 a gallon and I think people will freak out. Economically at 4.00 a gallon the US would still function to a large degree but I think people would start to take a hard look at there life style at that point and seriously change their habits and spending.


Eli, a poll I just posted on my local message board in central NJ that addresses this exact issue, at what price do you start to make changes in your lifestyle. After finding out that about 40% drove more than 30 miles one way to work each day in a previous poll, I'm thinking that $10/gallon won't be a problem for them, they have to work, and the jobs that pay enough to pay the mortgage and taxes on the huge McMansions around here are way far away, much of which is a car-only commute. They'll cut back on other stuff first, I'm sure. I'll post the poll results next week. I think people here will be surprised at how much exurbia will pay for energy.


I won't be. I'm one of the long drivers. When you live in a relatively rural, mountainous area, driving to the job is pretty much a way of life. Of course it's more painful at $3 than $2, but ultimately all it will make me do is get a car with better gas mileage. The cost for me to sell a house and move to be closer to the job, that conceivably could go away at some point, is higher than simply getting a more economical car and continuing to drive. I'd say I'll be driving until gas gets to $10 or so a gallon. At that point there will be so much demand destruction that I may not have a job to go to, anyway.
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Re: How the price of oil MIGHT drop later in the week.

Unread postby joewp » Tue 18 Apr 2006, 12:02:26

$this->bbcode_second_pass_quote('jdmartin', '
')I won't be. I'm one of the long drivers. When you live in a relatively rural, mountainous area, driving to the job is pretty much a way of life. Of course it's more painful at $3 than $2, but ultimately all it will make me do is get a car with better gas mileage. The cost for me to sell a house and move to be closer to the job, that conceivably could go away at some point, is higher than simply getting a more economical car and continuing to drive. I'd say I'll be driving until gas gets to $10 or so a gallon. At that point there will be so much demand destruction that I may not have a job to go to, anyway.


I think you're right, jd. The only question is when that demand destruction will destroy your job, before or after you hit your price breaking point. You might be willing to drive at $10, but your company might go under at $6 or $7 a gallon, depending on the industry. Uncharted territory... 8O
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Re: How the price of oil MIGHT drop later in the week.

Unread postby Clouseau2 » Tue 18 Apr 2006, 13:33:21

$this->bbcode_second_pass_quote('firestarter', '')$this->bbcode_second_pass_quote('joewp', ' ')I think almost 90% of US gasoline demand is inelastic at prices up to and beyond $5.00/gallon.



That's the other reason they were bitching--because they're trapped in their living arrangements, with no easy way out.


Yup, on CNN.com, there's a "who's to blame for high prices" poll, and the current results are:

OPEC 13%
Oil companies 47%
Lawmakers 18%
Drivers of gas-guzzling vehicles 22%

So that's "someone else's fault" vs. "our fault" at 4:1.
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