Hoarding is exactly what the government is doing right now by filling the SPR, and frankly it's the best thing that could happen. It drives prices up. High prices encourage demand destruction. They also finance new well development. The hoarded oil gives us a buffer to fall back on once shortages become more prevalent. High prices are what we need in order to adapt to what's coming, and the sooner they happen, the better.
Posted: Wed May 04, 2005 6:45 am Post subject: US stockpiles
Whenever I read a news report on oil prices it always seems to me like they are saying that the oil price is based mostly upon US stockpile levels. So that if stockpile levels are up, then prices fall, alternatively if stockpile levels fall then prices go up. Someone mentioned a while ago that these stockpiles in the case of an emergency would only last a month or less. So why do stockpile levels have such an impact on world oil prices?
Very good question Raxozanne and one that has puzzled me for along time also. With the U.S. having approx. 320 million barrels in reserve and using approx. 20 million barrels/day--this means they have a whole 16 days worth in reserve--hardly anything to jump and shout about. I believe it is the IEA that recommends all countries have at least a 90 day supply of oil in reserve --meaning 1,800,000,000 for the U.S. alone-something that obviously will never become reality.
All I can suggest is that they play on the ignorance most people have in this area of actual oil use--320 million sounds like and is alot of oil--the number gives people a false confidence and hence helps to lower market bidding. _________________ What is more desirable than something so rare
IIRC the number of days refers to the number of days the SPR could substitute for foreign imports. IE internal US production is not counted as the SPR is or was designed to overcome disruptions from further afield
The news reports of the connection between US reserves and crude prices
are possibly overstated.
To the extent it's true, it's because in the short run neither demand nor production can change much, so any increase or decrease in the amount
available in the next few days or few weeks must mostly come from reserves.
Thanks Boris--yes that makes sence--of course---still though you have to wonder why an amount so small would affect traders so as 320 million barrels is only approx. a one month supply if only figuring in import replacement--maybe not even that--so still nothing to jump and shout about. It still makes no sence that traders should be so affected by this relatively small amount of reserves. _________________ What is more desirable than something so rare
Joined: Mar 18, 2005 Posts: 2554 Location: Minnesota
Posted: Wed May 04, 2005 8:09 am Post subject:
There are the stratiegic oil reserves...the oil reserves that are in the pipeline (about to be turned into gasoiline)...and gasoline "stocks" How much is already been turned into gasoline & waiting to be sold.
Watch to see which of the 3 they are really talking about.
The only way the STRATIEGIC reserve should matter is that it takes oil OFF the market, therefor less oil on the market means higher prices. If this particular reserve was opened up today & all the oil released, then prices would drop to about $10 a barrel...but leaving us with nothing for an emergency.
We have been following the weekly inventory report in the "current events" thread for awhile.
What is important is not the size of the stockpile, per se, but the "energy balance". People are focusing on this number emotionally, and even the stock traders are using it as a short-term indicator of economic strength.
If US consumption is 20 mbd, and US production and imports are 20 mbd, then demand and supply are in balance for that week, more or less, and the inventory does not change.
If consumption is 20 mbd and US production and imports are 21 mbd, then the inventory goes up by 7 mb for that week. Similarly, if consumption goes down to 19 and production plus imports stay at 20, inventory goes up.
Same thing in reverse, if consumption is greater than production and imports, the inventory goes down.
The oil traders and others are looking at these inventory figures every week as a gauge of whether or not the supply/demand balance is correct. For about the last 4 weeks, inventory has gone up, refinery usage has stayed the same, so we can deduce from that, despite the gloom and doom, there is sufficient supply at the moment, given the level of consumption we are experiencing.
The balance was negative back in the January/February time frame.
When this inventory starts to drop it means we are either consuming more, or producing or importing less. There is some noise in the system, though, and these big oil tankers hold 2 million barrels, so if a tanker shows up on Friday instead of Monday it can make a noticeable difference in the inventory balance. So, you have to not get excited over small fluctuations, but look at trends over time to see what is really happening.
Per the above, refining is constant, inventories are going up, we are building inventory, there is enough oil, for now.
Joined: Oct 12, 2004 Posts: 582 Location: The Pit of Despair
Posted: Wed May 04, 2005 2:38 pm Post subject:
pup55 wrote:
What is important is not the size of the stockpile, per se, but the "energy balance". People are focusing on this number emotionally, and even the stock traders are using it as a short-term indicator of economic strength.
Pup55 gave a excellent explanation of the situation, and frankly, I'm surprised that there were questions about it because it is pretty basic economics. The inventory level says all you need to know about supply, demand, and price. When inventory is increasing over time, then product isn't moving fast enough, so the price should go down. When inventory is decreasing over time, the product is priced too low and the price should be increased (which is precisely why there shouldn't be any "no gas left" signs at the pumps any time soon). The price is the grease that keeps the whole system flowing.
So in general, the inventory levels should be a good predictor of price. But are they? Keep in mind that we are looking at US crude inventories in what is a Global market for the product. The US is a big chunk of the global market, but doesn't tell the whole story. It may be more useful to look at your country's inventory of finished petroleum products, and then look at the price of that product in your country.
There are also seasonal adjustments that would have to be looked at as well, since history shows that gasoline use becomes exaggerated in the summer, fuel oil consumption increases in the winter, etc.
Bottom line: Inventory is important.
Big question: Why have prices gone up even though current inventory is not a problem by historical standards?
The oil traders and others are looking at these inventory figures every week as a gauge of whether or not the supply/demand balance is correct. For about the last 4 weeks, inventory has gone up, refinery usage has stayed the same, so we can deduce from that, despite the gloom and doom, there is sufficient supply at the moment, given the level of consumption we are experiencing.
It is basically correct, but you have to correct for the seasonal variations in demand.
This is the building season where they have to replenish the heating fuel stocks from last winter and they have to build up gasoline stocks for the next driving season (June through august).
Therefore the stocks have to go up in this period. So it is not just absolute levels, but also a matter of how fast they are building. You have to compare the stocks to last year, not to last week, which is a mistake a lot of people make.
If you take this week as an example. The total stocks increased by a good 5 million barrels. However last year the same week the stocks went up by 7 million barrels. That is the reason why prices aren't dropping on the report. The stocks are growing, but they are not growing fast enough, which could spell problems later in the season when demand picks up.
We have seen a drop in the last week, but that was mainly due to the GDP report. As it turns out a slowdown in the US as well as the world economy is expected. This means that the demand for oil will decrease, or at least not grow as fast. That is why the oil prices fell, not the oil market report because it was fairly neutral.
Everything is in the way you present the data. If you look at the number of barrels, we are on the high range. However, if you divide your oil inventory by the forecasted consumption you obtain the equivalent number of days of projected consumption. Because demand is growing fast, the number of days is actually declining compared to previous years.
You cannot post new topics in this forum You cannot reply to topics in this forum You cannot edit your posts in this forum You cannot delete your posts in this forum You cannot vote in polls in this forum
News
Discussions
Resources
Members
Forum FAQ
Search
Usergroups
Profile
Log in to check your private messages
Log in
