CWall

Point/Counterpoint: David Andrew Taylor Misreads Current Oil Inventories

I think that your post has merit, not withstanding the math error, because it points to the crucial factor affecting oil prices: inventory cover. There are a couple of points that I think add to the discussion and alter the conclusion. The first is that demand is being destroyed so quickly that numbers being used in forward demand are almost certainly too high. That serves to understate the inventory cover. Second, the actual inventory has recently become much larger than the recorded inventory at Cushing. Tankers, and now rail cars are filled with crude and sit idle as storage facilities for speculators trying to arb the profits from record wide contango in crude. There is no official record of this type of storage (that I am aware of). Leaving this out of the inventory calculation also serves to understate actual inventory cover. Finally, there is reporting lag. The situation is changing so rapidly that 3 week old information can be significantly off the mark. One has to extend the lines and do some good old fashioned guesstimating. Consequently, I think these three additional factors when considered add to the actual number of days supply of crude available to cover forward demand. And I suspect that when you update your chart with new data next month you will find the number of days continues to rise. It all suggests to me that oil has another leg down in price over the short term. The trend will only abate when OPEC makes significant production cutbacks.