We Still Have Oil. Plenty of Oil

By Brad Zigler

Real-time Monetary Inflation: 8.3%

A surprisingly large drawdown in domestic oil inventories failed to boost energy prices today.

The U.S. Energy Information Administration [EIA] reported commercial stocks of crude oil fell by 2.9 million barrels from the previous week. Analysts and industry insiders had forecast a decrease between 1.4 million and 1.9 million barrels. At 347.3 million barrels, crude inventories are still above average for this time of year.

August crude, which had been holding steady near the $62-a-barrel mark, broke to the downside after the release of the inventory report and, by midday, were hovering near $60.

The market's reaction was indicative of its focus on distillates and significant buildup in deliverable oil at a key terminus.

The Street's consensus on refinery utilization proved to be dead-on at 86.8% of operable capacity. Gasoline production rose slightly, averaging nearly 9.3 million barrels per day, while refinery output of distillate fuels, including diesel and heating oil, dipped to a daily average of 4 million barrels.

Gasoline supplies, which were expected to rise between 786,000 and 800,000 barrels, actually jumped by 1.9 million, according to Energy Department figures. The agency also reported that demand for motor fuel has ticked up 1.3% from year-ago levels.

Analysts largely underestimated the build in distillate fuel inventories when they forecast a 1.7-million-barrel increase this week. The industry-funded American Petroleum Institute estimate, at 3.4 million barrels, was much closer to the 3.7-million-barrel increase reported by the EIA this morning. Demand for distillates remains weak, down 12.3% from this time last year.

This week, front-month crude futures fell $6.96 a barrel, or nearly 10%, while gasoline dipped 9.1%, or 17 cents a gallon. Heating oil slid 19 cents a gallon, or 10.4%. The declines put pressure on crack spreads, most especially on that of heating oil.

Overall refining margins softened by 52 basis points this week to 13.4%. Refining margins have averaged 18.2% over the past four years.

NYMEX-Implied Refining Margin

This week, the quarterly contango popped up 46 cents a barrel, to $2.67, reflecting a 1.6-million-barrel backup at the Cushing, Okla., delivery point for NYMEX WTI crude. That's the largest weekly buildup of the calendar year.

Oil Inventory Vs. Contango

Comments

[bindlepete:]

This is silly. Sure the near term is not a problem unless someone triggers the Middle East such as a few stray bombs in Iran, an attack on one or several oil terminals or a coordinated simple shot at a few pipelines, or perhaps a set of active homing mines in the Straight of Hormuz from say North Korea.

In the intermediate term 1-5 years lots of oil about with the economy/demand in a steady fall if you can pay for access from the super deep deposits in the offshore or access the on shore deposits in Chad, Darfur, Uganda or central Asia and find the blood and treasure needed to bring it up and to get it to market. Plenty of oil out there.

In the longer term (10-30 years) well, finding it producing it and bringing it to use could become troublesome.

Timing and perspective my friend. Jimmy Carter was right.

Jul 08 05:36 PM

[ijke.kaori:]

oil is falling triggered by rising stockpiles at cushing = delivery port from nymex-traded wti. national commercial stocks - are second thing

Jul 08 05:53 PM

[sethmcs:]

Nonsense. Oil fell because the US gov't is threatening to enforce the rules on this side of the Atlantic while UK and France theaten to do so on the other side.

Jul 09 12:32 AM

[jerrydd:]

Oil is falling because the speculators have figured out they have went as far up as this mini bubble will go and price will only go down from here.

Yet as soon, before really as the economy recovers, about 6-9 months from now, oil is headed back to $150/bbl or as high as it will go until the higher price kills the economy again.

We don't have plenty of oil once the economy recovers as world production can probably never go above 86mmbbls/day as oil fields are dying much faster than they can be found at a 4bbls used for every bbl found.

In the next few yrs we'll loose Mexico, North Sea and sweet crude from Saudi Arabia among the many other dying fields in Alaska, Russia, etc as they are used up.

The North slope use to pump 2mbbls/day now down to 800k/day.

Despite this oil in about 10 yrs will drop back to about $175/bbl in today's $ because by then the higher oil prices will have caused us to switch to more eff cars, EV's and NG semi's cutting our needs in 1/2 or more.

So buy on this downturn when it hits $45-50/bbl in the next few months out to 6-8 yrs as after that price will be so high people will have no choice to use less or stop altogether by going EV's, NG.

Don't believe those who think EV's still needs a good battery, they only need orders to ramp up many different types that are viable like Lithium, Sodium, Zinc/alum air which are all competitive with $4/gal oil. All these are capable of 300 mile range EV's with fast charging.

That and NG is why oil can't go too high for more than 5 yrs as the invisible hand will swat oil.

Jul 09 12:29 PM