.comment-link {margin-left:.6em;}
Visit Freedom's Zone Donate To Project Valour

Wednesday, July 08, 2009

Crude Inventories

See today's prior post on China and commodities below.

Here. The bottom line is that supplies of finished motor gasoline are up over last year, the supply of diesel moved up slightly, and the four week running average of imports is 775,000 barrels below last year's.

Crude inventories are 17.8% above last year's levels. Total stocks ex SPR are up 13.7% above last year's levels. YTD YoY comparisons of total product supplied for domestic use are down 5.9%. Motor gasoline demand for the last four weeks is now up 1.3% over last year. This supports the idea that some employment is popping up somewhere, perhaps in temp jobs. We'll see how this carries through the summer. The four week running average of distillate demand is now down 12.3% from last year.

From the narrative:
...U.S. crude oil inventories are above the upper boundary of the average range for this time of year. Total motor gasoline inventories increased by 1.9 million barrels last week, and are in the upper half of the average range. Both finished gasoline inventories and gasoline blending components increased last week. Distillate fuel inventories increased by 3.7 million barrels, and are above the upper boundary of the average range for this time of year. Propane/propylene inventories increased by 1.3 million barrels last week and are above the upper limit of the average range. Total commercial
petroleum inventories increased by 5.1 million barrels last week, and are above the upper limit of the average range for this time of year.
There is certainly no support for oil prices in this report. Gas prices have peaked and are dropping:

Gas prices have peaked and are dropping:

Thank goodness! Living with leveraged speculators (using central bank liquidity) pimping up the price of oil is infuriating. Very damaging to our economy. Especially since it forces us to transfer wealth to oil producing nations.
CNBC had some people on talking about Congress plan to bar oil speculators from the commodities markets.......but only here in the USA. Problem is, they can go overseas to ICE and the regulation fence has a big hole in it. One problem seems to be the commodities ETFs, which are buying more and more contracts with no sell intended. I don't understand how this works exactly, but it seems to introduce a tilt in the markets toward the buy side only. Back in the day when I used to dabble in commodities when you bought a contract there was a delivery date. If you didn't sell before that date you had to take delivery. Apparently today you can just roll your contract over and not have to take delivery. Or something like that. They talked about 8 million bbls of oil for sale each day, but something like 400 times that in contracts on oil alone. It's great for the commodities exchanges,(lots of fees) but is it an honest, orderly market? There was no agreement among the talking heads. The president of the CME in Chicago came on and insisted that oil prices and supply/demand figures were well correlated and there were no problems. To which I could only say, "Whaaat?"

I will continue to believe the markety is being gamed until there is regulation of the ICE in London.
Gas prices aren't the only thing that's rolled over. The U.S. stock market has, too. My morning survey of my market letters shows an expectation that the market will test its March lows again.

This doesn't necessarily say anything about the economy yet--it was pretty clear that the market got ahead of fundamentals. If the market breaks down below the March lows come this fall, I'll be digging a bomb shelter in the back yard.
Gasoline inventories are indeed building, particularly from last fall's hurricane disrupted levels. But at 23.2 days of use on hand, the increase in stocks to consumption ratio is a rounding error vs. 22.7 at this time last year. No biggie there: http://tonto.eia.doe.gov/dnav/pet/hist/w_epm0_vsd_nus_daysw.htm
Clamacious - yes, but usage at these levels and these prices is low, and stocks are above the 5-year average.

You'll have to wait for a hurricane, and I wouldn't get your hopes up even then.

Oil may go below $40 again. It could conceivably go below $25.
Saver & Jimmy - Part of the problem, IMO, is the buying of energy indexes.

On the one hand, I am concerned about energy speculation. On the other hand, the commodities market has a real function (when it is working). I am wondering just what regulatory steps are going to be taken, and whether we'll overshoot the mark.

I can't argue that it is currently working, because when prices keep getting boosted to the point that the end products aren't selling, one should take it as solid evidence that it is busted. There is also the disturbing reality that high fertilizer prices have reduced usage enough to cut into some ag production.

In part, I believe this situation has been created by pervasive groupthink involving a mass delusion that the equation of supply, demand and price does not apply to oil. But it does.
Neil - I don't think anyone is surprised about stock indexes falling.

Profit reports are due! Any greenshooty joyousness will be somewhat dampened by the reality that many corporations are still struggling to align expenses and revenues.
MOM - you'd be surprised how much optimism was in my inbox the last month or so.

I think that in the back of peoples' minds, a 40% rally means that the bear market is over, even if the path forward has its ups and downs. In reality, a 40% rally would be entirely normal in the *middle* of a bear market of the magnitude we've got here.

I can't say the market will break below the March lows, but even if it stays above those levels, I don't see a new bull market starting here. The best case is a sideways 1970s-style market for the next 10 years. The worst case is 1932. My expectations are somewhere in the middle.
The Dems want to keep speculators like hedge funds, ETFs, and such out of the commodity markets. They want to limit it to real hedgers like oil companies, chemical companies, airlines, drillers, etc. ie Those who have a commercial interest in hedging against price changes. But many are arguing that you need the speculators in there to make the market liquid. I think they're correct about that, but if the speculators are big enough to distort the market that's a problem. IMO, this issue is really important because energy prices are so important to our economic success. I hope they get some answers so these markets can work the way they're supposed to.

It's not just speculation. It's also the tremendous leverage that is used. A small amount of money can control a huge amount of oil in the futures market.

I'd like to see the leverage throughout the financial system cut back to ~ 6:1. Any leverage beyond that is counterproductive. Reduced leverage would force people to produce and save, not speculate and borrow.

Our system has morphed into a casino where a few steal the work of the many.

We need to squeeze the privilege out of the eCONomy.
Royal Dutch Shell just topped Forbes' largest companies list. Just wait until they book the losses from their tanker borne arbitrage play.
Here's an interesting article on the issue of oil futures trading, the CFTC, and ICE.
Go here:

They have a way around the CFTC called the London loophole.
Post a Comment

Links to this post:

Create a Link

<< Home

This page is powered by Blogger. Isn't yours?