Dr. C.

Were Oil Traders Too Bullish?

Oil traders may be missing the bigger picture regarding crude stocks.

One barrel of oil (42 gallons) can yield 19.15 gallons of gasoline so it takes 2.2 barrels of crude to make 1 barrel of gasoline.

Last week 1.8 million barrel drawdown in crude was offset by an almost equal 1.8 million barrel crude equivalent increase (.8 million barrels x 2.2) in the form of gasoline.

In fact, over the last 6 weeks, crude stocks have decreased by 18.9 million barrels while gasoline stocks have increased by 13.8 million. This means the crude drawdown has been more then offset by a crude equivalent increase in gasoline stocks of 30.36 million barrels (13.8 million barrels of gasoline x 2.2 to equal crude equivalent energy inventory).

So energy inventory has seen a crude equivalent build of over 10 million barrels in the last 6 weeks.

Disclosure: short oil via DTO

see:
www.eia.doe.gov/kids/e...
tonto.eia.doe.gov/oog/...
tonto.eia.doe.gov/oog/...

How $30/Barrel Oil Could Save the World

If you put a government enforced cap on oil at $30 per barrel many current supply sources with a marginal cost of production above $30 will stop production. You will also see a drastic cutback in the development of new sources such as the deepwater Brazilian fields currently in development. The result will be supply shortages, long lines at the gas stations, and eventual rationing.

If you want to see what the results of a artificially constrained oil supply look like, research the oil shocks of the 1970’s.

Crude Reality: How Long Can Oil Stay Down?

"Vast number of tankers full of oil"

Yes, there are tankers being hired to act as floating storage facilities. How much oil is stored at sea?

"Oil companies and traders are storing 80 million barrels of crude oil at sea, the most in at least 20 years, according to Jens Martin Jensen, interim chief executive of the management unit of Frontline Ltd., the world's largest supertanker owner."

This article also states that...

"The cost of hiring supertankers to collect crude oil from the Middle East jumped as the biggest oil-storage program at sea in at least two decades eliminated the supply of ships available for deliveries."

Source:
www.canada.com/calgary...

So this suggests that the 80 million barrels is just about the maximum tanker storage space available and the cost of leasing these ships are rising.




So how much is 80 million barrels of crude?

EIA estimates global demand for 2009 to be about 86 mbd.

Source:
uk.reuters.com/article...


So we see that the "Vast number of tankers full of oil" won't hold enough oil for 1 days' global consumption.

Sorry - I'm still not convinced that the current "glut" will have a significant impact on price over the next year or two.

I may be wrong - but then, I may be right.

I'm long DXO with a 1-2 year planned holding period
Most of the position was put in place on days oil traded below $40






On Jan 15 08:58 AM Mmarrkk wrote:

> Dr. C: look offshore! Vast number of tankers full of oil are sitting
> on the high seas.

Crude Reality: How Long Can Oil Stay Down?

"Massive stockpiles are building up"?

here's an interesting set of numbers

at the end of December 2006, the US had a 20.7 day supply of oil on hand
at the end of December 2007, the US had a 19.0 day supply of oil on hand
at the end of December 2008, the US had a 21.9 day supply of oil on hand

these "massive stockpiles" represent just a few days use - they don't seem so big to me now

source: tonto.eia.doe.gov/dnav...

$60 a Barrel Oil in 2009?

additional comment....

or, if not trade to $80, then trade above $60 for an extended period of time to offset the lower prices at the start of the year.

$60 a Barrel Oil in 2009?

Don't forget that to average $60 for the year the price must rise to $80 to offset these days trading at $40.

So the forecasts are essentially implying a 100% rise between bottom to top during the year.

A nice trade.....