Welcome to the Age of Bountiful Crude Oil - It Should Last About a Month

This week’s DOE inventory statistics came in way over expectations for crude oil stocks rising almost 4 million barrels, twice the number predicted by industry analysts. For the time being, we've got plenty of crude oil on hand but will it continue to be enough for the future?

Finished product prices have remained flat and crude oil prices on the Nymex remained unchanged. In plain language, that means while crude oil prices meander up and down, gasoline and diesel prices are staying firm due to the expected increase in summer demand.

The June WTI closed up roughly 30 cents at $48.85 a barrel today. That price had jumped up a whole $2 a barrel from the May crude oil price, which had settled at $46.64 a barrel on Tuesday afternoon.

Short sellers came into the market on Monday squeezing crude oil prices down almost $5 a barrel before it started recovering late Tuesday. Goldman Sachs, the only investment company with positive earnings in the last quarter, led the charge causing prices to reflect the advice they had issued to their investors over the weekend.

Gholamhossein Nozari, Iran's OPEC governor, spoke at a recent news conference and declared that the oil cartel may decide to cut production at their forthcoming meeting being held in Vienna, Austria at the end of May. He also said that the market continues to remain oversupplied due to the high level of crude oil inventories currently being stored in consumer countries.

The International Energy Agency (IEA) in Paris, France announced a week ago that global demand for oil will decline by 2.4 million barrels per day (bpd), giving credence to economists’ consensus that the world’s economy will not recover until 2010.

The IEA stated that such a decline in demand has not been seen in almost 30 years. At the current level of 83.4 million bpd, the world’s demand for oil is already a full one million bpd lower than expected.

The petroleum market awaits the eventual recovery of the US and world economies. But, as our economy shows signs of healing, crude oil and fuel prices will start rising steadily again. It means that you can relax and enjoy your time of plenty with gasoline staying between $2 and $2.50 per gallon for about a month.

Disclosure: The writer hold no positions in any of the equities or commodities mentioned in this article.

Comments

[Mad Hedge F...:]

That may be a bit optimistic. Daniel Yergin of Cambridge Energy Partners says that crude prices will stay in a $40 to $60 range for the foreseeable future. The author of the Pulitzer Prize winning “The Prize”, the best business book I have ever read, believes the recent 26% rally in the stock market is what dragged crude up from $35 to $54. Another downdraft in stocks, or a realization that the recession will be longer than expected, could take crude back to $40 in a heartbeat. Inventories are at a 16 year high, with possibly 80 million barrels at sea, as demand has shrunk from 86 to 83.5 million barrels a day over the last two years. Spare capacity is now huge. Don’t expect to break out of this range until a recovering economy eats into these supplies, and inflation makes its inevitable return. Then all commodities will roar, not just crude.

Apr 23 10:14 AM

[31October:]

"The petroleum market awaits the eventual recovery ... as our economy shows signs of healing, crude oil and fuel prices will start rising steadily again."

rice increases will happen, and probably to a scale greater than the author imagines. But It will be far, FAR longer than a month. Maybe 2010.

I am perplexed as to why anybody thinks a market rally means the economy is "healing."

1. Recent financial profits = shell games + removal of fair-market-value accounting. There is no improvement, just papering-over.
2. The shadow banking system and households are DEleveraging, causing DEflation and *reduced velocity of money* for a long time. The bubble in debt is still deflating.
3. Jobs, employment, layoffs, lack of manufacturing sector - bad and worsening. Forget the S&P - you're not going to visit Disney if you might not have income next month.

The author's premise of the value of oil is correct. But demand destruction is increasing, and the already huge reserves are increasing.

In just one month, the financial systems will be not able to continue their ponzi-like trading schemes enough to make confidence levels will rise to the point that manufacturing and trade increase. Record levels of world reserves will not be reduced enough to trigger massive increases in oil prices.

Apr 23 10:58 AM

[31October:]

Oops - Price increases , not "rice increases"

Apr 23 11:07 AM

[376602:]

Goldman Sachs trading is again making profits for the boys.

Apr 23 12:04 PM

[Ferdinand E...:]

Oh to be in Vienna now that spring is here, because the OPEC people are not going to allow the oil price to do what it did 9 or 10 years ago. Despite what Duude said, I've become inclined to give them all the credit in the world. They know what they are doing...I think.

Apr 23 01:27 PM

[CJ-49:]

Price per barrel of crude oil should go down to $25 per barrel within next 6 months, recession or not.

Apr 23 01:57 PM

[yellowhoard:]

Freya,

No need to drill. We've got fantastic new green technology just around the corner.

Soon, we'll be flying ethanol powered hover cars to work everyday. It will be glorious!

Apr 23 02:40 PM

[notsosmart:]

i see a lot of green shoots replacing my lawn.oops-just weeds.

Apr 23 03:44 PM

[Old Trader:]

I'm not so certain how "huge" the abundance of oil is....and even if it exists, its no the longer the "cheap" oil....the days of poking a hole in the ground and attaching a pipe are long over.

Given the current enviromental concerns...not just here, but globally, its not clear to me if TPTB will let us use those 100s of years worth of coal. (Btw, coal CAN be converted to liquid fuels...Germany did it during WWII, and Sasol in South Africa has been doing it for years, but its not a "cheap" process).


On Apr 23 01:18 PM Cetin Hakimoglu wrote:

> There is still a huge abundance of oil, and 100's of years worth
> of coal, too. Energy isn't an issue.

Apr 23 05:34 PM

[Vinz Klortho:]

Good info about world wide oil reserves, supply, production, etc.
here:

http--simmonsco-intl.com-fil... Las Vegas Conference.pdf

Vinz

Apr 23 06:12 PM

[Vinz Klortho:]

Sorry, maybe this link will work:

www.simmonsco-intl.com...

Vinz

Apr 23 06:14 PM

[Speedspirit:]

Havent you heard the Boyz arent going to let oil go above 50 per barrel for 12- 18 more months so the can gain power over the Arabs who are quickly losing money at these prices. Big Picture here people. Dont be fooled by the brainwashing. Think. Its like the Gold manipulation, Silver Manipulation, Oil and US taxpayers.

Apr 23 07:49 PM

[optionsgirl:]

You'd think our own government would be stockpiling reserves while they can do so at these prices. Now, wouldn't that be an intelligent way to spend taxpayer $?


On Apr 23 02:40 PM yellowhoard wrote:

> Freya,
>
> No need to drill. We've got fantastic new green technology just around
> the corner.
>
> Soon, we'll be flying ethanol powered hover cars to work everyday.
> It will be glorious!

Apr 23 11:27 PM

[devassocx:]

To attribute intelligence to those that spend taxpayer $ is a
big mistake!!!


On Apr 23 11:27 PM optionsgirl wrote:

> You'd think our own government would be stockpiling reserves while
> they can do so at these prices. Now, wouldn't that be an intelligent
> way to spend taxpayer $?

Apr 23 11:53 PM

[No Eye Deer:]

I think you should go back to the 70s. Crude oil price collapsed and remained lower for years. I think oil demand in the west will carry on falling. The biggest fall in oil demand will be in the US. The main reason being your inefficient car industry. In Europe and Asia most people drive moderately efficient cars already. In the US you guys have been drinving around in trucks. The oil price has changed that. Evidence from car sales is showing a massive increase in small car sales. 5 Honda civic drivers can get to work and back using the same fuel as a single SUV driver. As these sales increase so will the overall energy efficiency of the US transport system. This effect added with the reduction in energy demand due to the recession. I would say that the US will not see increasing oil demand for a while.
Oil demand in the US may have peaked. I have a condition for that statement, peak will depend on how large the US population gets. Seeing 700 million quotes.

The main demand for oil will come from the developing world. This segment will continue to grow rapidly. I guess there will be a cross over were this demand is strong enough to offset the falling western demand.

Apr 24 03:21 AM

[Duude:]

No Eye Deer:

I think what you meant was 'the main new demand will come from the developing world'
As for the falling western demand, setting the economy aside which is hard to do, I don't expect people to mothball the great number of SUVs and trucks they already own till gasoline prices become unbearable again and that's not likely for a few years. While new demand for vehicles will likely tilt to economical vehicles, it will take years for it to change the demand for oil much at all.

On Apr 24 03:21 AM No Eye Deer wrote:


> The main demand for oil will come from the developing world.
> This segment will continue to grow rapidly. I guess there will be a
> cross over were this demand is strong enough to offset the
> falling western demand.

Apr 24 09:24 AM

[31October:]

Not to nitpick, but for my Civic Si to get 5X the mileage of my guzzlin' SUV, it would have to get 115 MPG!

...How do I get a family of five into it?
...If I could, how do I stop the fighting?
...Where do I put the baby bag - or do I have to stop & open the hatch every time he needs something?
...How do I get across two states and back without sustaining permanent hearing damage?
My SUV gets 23 on the highway - the Civic gets 33. The lack of misery is worth it, even if gas were $10/gallon.

I used to live in Europe and love hot hatches. Just because American cars don't fit there, and your cars don't work for our long family commutes do not mean that our car industry was wrong.

***The other thing to remember for both continents who criticise Detroit is that the Corporate Average Fuel Economy act mandates that trucks do not have to pass the same efficiency standards and mandates that high-margin trucks subsidize money-losing compacts. In fact, anything over ~5500lb? is exempt from economy standards. Congressmen made the rules, then were accusative and judgemental when Detroit followed them.



On Apr 24 03:21 AM No Eye Deer wrote:

> I think you should go back to the 70s. Crude oil price collapsed
> and remained lower for years. I think oil demand in the west will
> carry on falling. The biggest fall in oil demand will be in the US.
> The main reason being your inefficient car industry. In Europe and
> Asia most people drive moderately efficient cars already. In the
> US you guys have been drinving around in trucks. The oil price has
> changed that. Evidence from car sales is showing a massive increase
> in small car sales. 5 Honda civic drivers can get to work and back
> using the same fuel as a single SUV driver. As these sales increase
> so will the overall energy efficiency of the US transport system.
> This effect added with the reduction in energy demand due to the
> recession. I would say that the US will not see increasing oil demand
> for a while.
> Oil demand in the US may have peaked. I have a condition for that
> statement, peak will depend on how large the US population gets.
> Seeing 700 million quotes.
>
> The main demand for oil will come from the developing world. This
> segment will continue to grow rapidly. I guess there will be a cross
> over were this demand is strong enough to offset the falling western
> demand.
>
>
>
>
>

Apr 24 10:16 AM

[No Eye Deer:]

Duude, I think people will be pragmatic. Already you are seeing falling mileage. This is the effect of the recession, those in work many will have changed their driving behavior. I think we have enough anecdotal evidence for this. We have also over the last couple of years seen a dramatic rise in small car sales.


My SUV gets 23 on the highway - the Civic gets 33. The lack of misery is worth it, even if gas were $10/gallon.


Is that correct..

I seen figures quoting low 11/12 for SUVs

Also seen higher figures for civics. 40 mpg..

These number really suck.. I drive a ford focus.. Diesal..getting 60mpg, knock 20% off as its a UK gallon..thats 48mpg.

Seeing Polo, Seats with 80/90 mpg.

More and more coming on the market..

What I am saying is that you guys being more inefficient you have greater to gain than us.

www.seat.co.uk/generat...

Heres a link to the new seat Ibiza.. More cars comming on the market everyday. No fancy hybrids.

31OIctober.. The idea is not to force people into cars but to make people make their own decisions. Personally I think for security reason the US should not be relying on foreign nutters for energy.

No were in that post did I mention detroit or the US car history. The reason being simple. I know little about it. I do think from a personal point of view large cars is a bad idea. My logic is simple.

Take that seat, 77mpg US gallon..
That mean an average car journey per annum is 15400.
Makes the sum easier.
You average fuels spend for the following prices:
Oil $10 a gallon.. that would cost $2000
Oil $20 a gallon.. that would cost $4000
Oil $30 a gallon.. that would cost $6000
Oil $40 a gallon.. that would cost $8000
Oil $50 a gallon.. that would cost $10000

Put the same numbers in for your SUV. 23..

You average fuels spend for the following prices:
Oil $10 a gallon.. that would cost $6750
Oil $20 a gallon.. that would cost
Oil $30 a gallon.. that would cost
Oil $40 a gallon.. that would cost
Oil $50 a gallon.. that would cost


I think small cars are future proof.. SUVs are not.

The US would not need to import oil if your cars were as efficient as Europeans.

Thats a big saving.

Apr 24 01:54 PM

[$OMALIA:]

It will last 30 years.

Apr 25 07:27 AM

[Freya:]

Mad Hedge: "spare capacity" is huge.

Last I saw from the Trade figures, we were still importing some 9 million brls a day. We certainly don't have any spare capacity.

Opec's spare capacity is huge. Aren't they the ones cutting back? Do you expect them to pump more to keep oil prices down?

There is no "spare" capacity if it lies in the hands of the Cartel.

Meanwhile, not only do we continue to deplete our own wells at an annual rate of 6.7% but we have stopped drilling to replace any of it.

Apr 23 01:04 PM