Petroleum Inventory Data Show an Interesting Trend

The petroleum numbers seem to be showing an interesting trend developing. Consensus estimates were fairly accurate for various forms of refined crude, but raw crude inventory continues to pile up faster than analyst predictions would indicate.

My take on this phenomenon is that the refiners have a much more keen sense of and concern for market demand and have adjusted production accordingly while crude producers who are feeling the double pinch of drastically lower prices and significant reduction in demand continue to oversupply in a desperate attempt to maintain historically abnormal levels of cashflow.

If this trend continues I would expect crude to have serious trouble breaking out past the $50 resistance which it has failed to breach so far this year. At the same time this seems to bode well on a relative basis for oil refiners as they seem to be in line with market demand and should be the first players in the energy sector to see a return of pricing power once demand begins to recover.

Stock position: None.

Comments

[scfranklin94:]

Gasoline inventories are high and the product has a shelf life, that's why the refineries backed off production.

Feb 12 08:38 AM

[Jebeatsfish:]

I think the refiners have more control on the inflow of crude to their refineries, whereas the raw crude producers have a greater difficulty in shutting down production. Think about it, is it easier to prevent delivery of crude to your refinery or is it easier to shut down an ocean rig or a derek in Alaska. Oil production is a much more difficult engineering process. I doubt refiners are more adoit at identifing market demand than producers, refiners just have greater flexibility in controling the process.

Feb 12 09:29 AM

[Philip Gvinter:]

You may be correct in pointing out that refiners have greater ability to change input vs producers ability to change output. That having been said the real point of my article is that the refiners will have more pricing power during a demand upswing and more spare capacity to take advantage of shifting market trends than the producers. Regardless of cause this still puts them at an advantageous position in relation to producers once demand begins to pick up.


On Feb 12 09:29 AM Jebeatsfish wrote:

> I think the refiners have more control on the inflow of crude to
> their refineries, whereas the raw crude producers have a greater
> difficulty in shutting down production. Think about it, is it easier
> to prevent delivery of crude to your refinery or is it easier to
> shut down an ocean rig or a derek in Alaska. Oil production is
> a much more difficult engineering process. I doubt refiners are
> more adoit at identifing market demand than producers, refiners just
> have greater flexibility in controling the process.

Feb 13 10:10 AM