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Fuel Check

by: Bespoke Investment Group June 04, 2008 | about stocks: DBO / OIL / UGA / USO    

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This week's inventory report from the Energy Information Administration [EIA] showed the following changes in energy inventories:

Updating our charts of weekly inventories in 2008 versus their historical average shows that crude oil stockpiles haven't been this far below average since the second week of January. Even with this larger than expected draw-down however, crude is trading lower.

Part of the explanation (as if anything in the energy markets can be explained nowadays) for this price action is that inventories of gasoline are just slightly below average, while inventories of distillates are 5% above average.

click to enlarge

Crude_inventories_0530_5

Gasoline_inventories_0530_2

Distillate_inventories_0530_2

Oil Prices vs. Expectations

The forward contracts on crude are projecting prices to stay above $123/barrel from now through 2011. This is much higher than the median projections from oil analysts according to Bloomberg.

As shown below, the consensus prediction from analysts is for oil to remain at $100 or less from Q3 '08 through 2011. The median projection for oil in 2010 and 2011 is $92 versus the forward contract price of $123 and change. Hopefully in this case the actual money isn't right.

Analystforward

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This article has 10 comments:

  •  
    Jun 04 04:08 PM
    pssssssss.
    that is the sound of a bubble leaking air
    Reply
  •  
    Jun 04 04:33 PM
    nice call farhad...fo sho!!

    -scott
    oilfeeds
    Reply
  •  
    Jun 04 06:04 PM
    Crude oil inventory has fallen three consecutive weeks, each time more than expected. Any speculation as to why? Blame it on "speculators"... Or maybe there really is an issue of supply less than demand.
    Reply
  •  
    Jun 04 07:24 PM
    There is no bubble. What we are seeing now is called a correction.
    Reply
  •  
    Jun 04 08:03 PM
    Crude inventories are falling because like gold buyers, the new breed of oil investors like to hold physical oil. Garages full of oil barrels LOL! There's a bubble AND there is a supply problem. The air may leak out of the speculation side, but the supply side will make sure oil never drops below $80. 2009 $150 oil will be here to stay. Go read this site and get involved. We can help ourselves out of this mess if we put a little effort into it:


    AmericansForJobsAndEne...
    Reply
  •  
    Jun 04 08:14 PM
    It is amusing to read stories today using "plumeted" to reference a drop of $2 and change. As for inventories, they may fall for lots of reasons...oil refiners may decide to draw down in hopes they can replace stocks later more cheaply, or, bad weather or other difficulties delay offloading tankers, or, a key supplier decided to fill an order to China ahead of our guys.
    I think Jangchup has it right. It's some intermediate profit taking.
    Bespoke's charts show us just what we would expect as a commodity becomes hugely more expensive: processors stop storing tons of it. Very few jewelers can afford to keep thousands of pounds of gold laying around waiting for use, but if gold were as cheap as bricks you'd see towering stacks of the stuff in the jeweler's back yard...for convenience. Same with refiners. They pay attention to dollar inventory turns llike anyone else. To fill a tank farm now takes twice as much money. Only a fool would keep up the old habits of filling all his tanks to the max.
    Reply
  •  
    Jun 05 02:32 AM
    Considering that we have now reached and passed the peak oil period where prices have been bid up to unbelievable prices, those theorists would now say we are entering the final demand destruction phase where prices will now begin their long decline to near worthless, as people adapt to mass transit, battery/ultra-capacita... cars, and inevitably to fuel cells all within the next 10 years.
    Reply
  •  
    Jun 05 05:30 AM
    Early summer seasonality could still favour a revisit to maximums.
    Reply
  •  
    Jun 06 12:14 AM
    Zen. - I think you are correct about peak oil but the US can't change anything in 10 years. I just watched our congressmen debate the price of gasoline. All they did was bicker and point fingers and none of them new squat about peak oil or the market forces that are causing the price of gasoline to skyrocket. With that bunch of self interested fools leading the way I think we can count on higher prices, shortages and chaos.
    Reply
  •  
    Jun 06 07:05 AM
    India has announced that they believe their 8.8% gdp is too low and want to increase it to 12% and keep it there.

    Does India export oil?

    China wants to continue their 12-20 million annual farm exudus and rebuild the Sow and Quake ravaged areas at the same time...they will surely need less oil?

    Russia's growth was 7%, they are exporting less, Internal usage anyone? Same with the entire Middle East, the Saudi field will not be tapped if oil drops.

    Where are the Western Friendly countries that are going to increase our supplies. Canada shot its industry in the Face a few years ago.

    Forget peak oil, WTI is in short supply not the rest of the complex. That is the $200 oil.
    Reply
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