Energy Inventories

This morning's release of petroleum inventories from the Department of Energy showed that stockpiles of crude oil, gasoline, and distillates all rose by larger than expected amounts. 

Below we highlight the weekly 2008 inventory levels of crude oil, gasoline, and distillates and compare them to the average weekly inventory levels since 1984 (gasoline levels go back to 1990).  Interestingly, even with the inventory builds we have seen in recent weeks, current levels of all three commodities remain below average.  Although judging by their trading action, continued builds in inventory levels are probably on the horizon.

click to enlarge

Comments

[long_on_oil:]

In 1996 BP averaged $120 a share, oil averaged $20.46 a barrel and BP paid a dividend of $1 a share. Since that time BP split 2:1 twice and is currently paying a dividend of $3.36. Had you purchased 100 shares you would have 400 shares today and you would be getting $1344 in dividends per year That is a yield of 11.2% based on the original investment. Even at the current low price of $43 a share you would have an unrealized capital gain of $5200 plus all the dividends you would have received over the past 12 years.
For the average conservative buy and hold investor that is not to bad. So why in the heck are the oil related stocks being beaten down so much?
For Petes sake oil is over $60 and BP is yielding 8% and the stock is selling for $43 I feel like I am living a dream.

2008 Oct 22 03:30 PM

[MILESCFA:]

BP sounded pretty good on your math, but the long-term real return on stocks is around 9-11%, so BP is slightly ahead of average (on your math). However, I know dividend yields have been much lower in the bull market of the late 1990s, but I thought it would be hard to look at BP dividends since 1996. Alas, BP has them on their website since 1999.

Roughly, BP yielded 3% dividends on average (2%+ 99-01, 3.5% since). From $30 to 43 over 12 yrs is 3% annually. So BP has returned about 6% (BEFORE INFLATION) over the last 12 yrs. This is a pretty poor performance relative to the long-term REAL returns on stocks (but I would guess given the size of this bear market, it's probably in-line with other shares).

I can't remember exactly, but of the 9-11% real returns on stocks over the last 90 yrs, historically dividends have provided a significant portion (at least half?). And oil was probably justified going form $20 to ~$80 over the last 12 yrs (from $80 to $150, however, I hate to say, but OPEC was probably right - it was the huge hedge fund inflow that caused that bubble). From $20 to $60 is about a 10% annual increase in the price of oil over the last 12 yrs.

So in the end, with a yield of around 7.5%, I agree that BP is looking fairly attractive (God forbid, I'm an options trader and I'm thinking a buy-and-hold on BP is making sense... is this market "wacked" or what!).

2008 Oct 23 10:58 AM

[Ferdinand E...:]

Hmm. Many years - or maybe it was centuries ago - I extended a model of Professor Franklin Fisher (of MIT) - to show the relationship between oil inventories and oil prices. If I remember correctly, in my new textbook I have a long discussion of that model. However, as far as I am concerned, that relationship is a short-term affair: it doesn't make much difference what happens to inventories at the present time, because it is trend supply and demand that explains the movement in the oil price. Having said that the above is an important note, with considerable pedagogical .value.

2008 Oct 23 10:58 AM

[Etep:]

All I can say is I bought 100 shs of Exxon in 1996, for 3600. Those 100 shares are now 552 shares, so at todays price I have increased my original investment by a factor of 10, an annual rate of 21%. Too bad I didn't sell when it 95 several months ago.

2008 Oct 23 11:21 AM

[MILESCFA:]

Fred et.al., we posted at the same time, so I guess you didn't see my comment to call it "pedagogical" (I looked it up). I hope you think my comment is pedagogical BUT I sure hope you don't think long_on_oil's comment was pedagogical; the math was wrong (~6% is NOT 11.2% and is not even close to 9-11% REAL return... if you're talking 12 yr returns, you have to make the distinction between REAL vs NOMINAL).

2008 Oct 23 11:48 AM

[MILESCFA:]

Etap, my software shows XOM was $20 in 1996. Have you reinvested dividends? If not, then perhaps mergers make my price charts unreliable and I would like to know if this is the case.

If my software is right on price, then re-investing of dividends has taken an 11% price-only annual return to your 21% (when XOM's current div is a paltry 2+%). That is a great example of "the power of compounding"!

2008 Oct 23 12:01 PM