An Interesting Explanation for the US Inventory Drop

The markets were shocked to learn of a steep drop in US inventories last week, a 8.4 million-barrel drop as a opposed to the 1.5 million-barrel expected. Turns out demand had little do to with it:

The surprise drop fed into expectations that the U.S., the world's biggest
oil consumer, would start using more crude as the country's economy pulls out of
recession.

However, a big decline in oil imports, to an 11-month low, had more to do with the decline in U.S. inventories than rising demand. Owners of oil being stored in tankers at sea had little incentive to bring their cargo to shore last week, as the front-month futures contract traded at a big enough discount to outer months to make it more profitable to store oil for future sale.

"This rally may not be sustainable until the demand side of the equation has improved, and we haven't seen that yet," said Gene McGillian, an analyst with Tradition Energy in Stamford, Conn. Still, he said the market's rebound on the data "is a little stronger sign of confidence developing and I think there's more risk of upside than downside at this point."

U.S. demand for refined products averaged over the last four weeks did rise to its highest point since March 20, though consumption was still down 2.2% from a year earlier, the DOE said. Even after the big drop last week, inventories are still 16% above this time last year.

The failure of futures to set a new 10-month high indicates that some skepticism remains over whether a recovery will begin to reduce the oil glut in the next few months.

- Brewskie

US Oil Inventories Up 20%

Amid lackluster demand, US oil inventories are up 20% over last year:

While the market positions itself for a recovery, oil and fuel continue to pile up in storage. U.S. oil inventories have increased for three consecutive weeks, and are nearly 20% above last year's levels, the Department of Energy said Wednesday in its weekly inventory report.

Gasoline demand fell 2.7% last week, and was at its lowest point for the week since 2001, the department's Energy Information Administration said.

"The [oil] market shrugged off a bearish [inventory] report and traded more as a financial asset instead of an actual industrial commodity," said Stephen Schork, editor of the energy newsletter The Schork Report.

The world's storage terminals have been overwhelmed with unwanted oil and fuel for months, but this week's data pointed to an even bigger and persistent glut than many in the oil market had anticipated. Although U.S. refiners cut back a full percentage point on crude processing, distillate inventories, including heating oil and diesel, rose by more than analysts expected, while gasoline stockpiles fell by less than the average forecast in a Dow Jones survey.

Distillates inventories are at the highest level for the week since 1982 as the recession has cut demand for the fuel, which is commonly used in shipping goods around the world.

- Brewskie

Oil to Crash to $20 Later This Year?

I've written a few posts about the ongoing oil glut, the current manipulative oil speculation, that the current oil price has nothing to do with supply and demand fundamentals; I've been betting for some time oil will go down. How low? I haven't said for certain. University of Calgary professor Phillip Verleger sees it heading to $20 a barrel:

A crude surplus of 100 million barrels will accumulate by the end of the year, training global storage capacity and sending prices to a seven-year low, said Verleger, who correctly predicted in 2007 that prices were set to exceed $100. Supply is outpacing demand by about 1 million barrels a day, he said.

“The economic situation is not getting better,” Verleger, 64, a professor at the niversity of Calgary and head of consultant PKVerleger LLC, said in a telephone nterview yesterday. “Global refinery runs are going to be much lower in the fall. If the recession continues and it’s a warm winter, it’s going to be devastating.”

He adds,

“OPEC don’t realize the magnitude of the cuts they need to make,” which would total about a further 2 million barrels a day, Verleger added. “Storage is going to become tight. It’s not clear if there’s going to be enough storage available.”

- Brewskie

OPEC: Market Fundamentals Unlikely to Ignite 2010 Price Inferno

OPEC doesn't believe market fundamentals will set 2010 oil markets ablaze:

The oil cartel said in its latest monthly oil market report released July 14 that lower projected demand for its crude would increase its surplus production capacity which, combined with increased idle refining capacity, would be enough to compensate for any sudden demand surge or supply disruption.

"Given the projected outlook, increasing OPEC spare capacity and growing idle refining capacity should be sufficient to offset any sudden surge in demand or supply disruption in either crude or products," OPEC said, without giving figures for its current or projected surplus capacity levels.

"This reduces the likelihood of fundamental factors exerting strong upward pressure on prices in 2010."

Although OPEC sees world oil demand growing by 500,000 b/d in 2010, it expects this to be satisfied by non-OPEC producers and sees demand for its own crude falling by 400,000 b/d next year on top of the 2.3 million b/d drop in demand between 2008 and 2009.

With current crude production -- estimated at 28.44 million b/d in June -- more than 300,000 b/d than the 28.1 million b/d projected 2010 call on OPEC crude, the cartel will have food for thought at its next meeting, scheduled for September 9 in Vienna.

- Brewskie

Guess What OPEC's Been Doing? (Suprised?)

OPEC has stated repeatedly it prefers a target oil price of $70-80 per barrel, and has committed produciton cuts to reach that aim. Since oil's been higher the past several months, guess what OPEC is having a problem with? Historical non-compliance:

OPEC nominally still has big oil-production cuts in place, but cartel members such as Iran and Angloa—both suffering from the recession—are looking for revenue in extra barrels of crude. Compliance among OPEC’s 11 quota-bound members was down to 68% in June, after reaching 80% earlier this year, according to the International Energy Agency.

That compliance rate is par for the course, historically. But it means that since April, OPEC increased production by about 330,000 barrels a day. And additional oil has hit the market from other sources, the IEA says. Since demand is still fairly week and inventories are still bulging, that extra crude is simply feeding oil bears.

Is that a good idea to pursue when there's a already a global glut?

- Brewskie

Oil Tanker Industry Waning (Wonder Why?)

Slacking oil demand is putting a crimp in the demand for oil tankers...

In a precursor of troubled waters ahead for the shipping industry, Frontline Ltd, the world’s largest operator of supertankers, recently cancelled orders for two supertankers and four supermaxes, a total value of $556 million. The chairman of Frontline, Jens Martin Jensen, predicted that moves by other shippers will “emerge in the next weeks” that could result in as much as one-third of all orders for new oil tankers being cancelled or delayed due to the slacking global thirst for crude. The stock price of Frontline Ltd (NYSE: FRO) has fallen from a high of $72.36 in the past year to $24.32.

[...]

While the price of oil has more than doubled since February 2009, it has largely been the work of speculators and investors fleeing the weak dollar for commodities. The global demand for crude has actually declined from the economic downturn, crippling the tanker industry. The International Energy Agency expects the first drop in overall oil demand in consecutive years since 1983. In the past year, the share price of USO, (NYSE: USO) the exchange traded fund for petroleum, has fallen from $119.17 to $37.41.

Orders at shipyards worldwide have collapsed: a 42.3% fall in the last year alone. Ye Zhigang, an analyst with Haitong Securities, predicts that the global demand for shipping will remain low until 2013. He expects large government owned shipyards to endure with many of the smaller private ones being forced into bankruptcy or gobbled up by a stronger competitor.

As a result of the slack in demand, the rental price for a supertanker, based on shipping rates from Saudi Arabia to Japan, is now so low that many are being used for storage. There are now about 60 supertankers only holding oil, a one-third increase since April of this year. The benchmark rental rate for supertankers in the first quarter of 2009 was at its lowest rate since the third quarter of 2002. The Claymore Delta Global Shipping Index, (NYSE: SEA) the exchange traded fund for the shipping industry, is at $11.46, down from a year high of $26.05.

- Brewskie

US Oil Demand Down to 12-Year Low

The EIA sees second-quarter US oil demand down 4.2%:

U.S. oil demand in the second quarter was revised up by a slim 100,000 barrels a day from a month-earlier estimate, but will be a 12-year low for the period, at 18.74 million barrels a day, government forecasters said Tuesday.

Second quarter demand will be down 4.8%, or 940,000 barrels a day,
from a year ago.

Citing the weak economy, the U.S. Energy Information Administration also said full-year 2009 oil demand of 18.86 million barrels a day will be the lowest since 1997, and down 2.9%, or 550,000 barrels a day from a year earlier. That would mark the fourth-straight annual decline in demand in the world's largest oil consumer, and follow a 1.26 million barrels a day, or 6.1%, decline in 2008.

In 2010, the EIA said oil demand will rise a modest 300,000 barrels a day, or 1.6%, to 19.16 million barrels a day.

[...]

The EIA said third-quarter U.S. oil demand is expected to average 18.83 million barrels a day, little changed from 18.84 million barrels a day a year ago. Fourth-quarter demand is expected to average 19.05 million barrels a day, down 1.2%, or 230,000 barrels a day, from a year ago. In May, EIA said fourth-quarter demand would average 19.02 million barrels a day, down 260,000 barrels a day from a year earlier.

BTW - I caught this graph over at Carpe Diem. America's driving decline continues.
>- Brewskie

Tillerson, Yergin See Oil Price Decline

I found this interesting bit off of MSNBC.com. One fool from Motley Fool also foresees an oil price decline (and see who else does, too):

Oil's flimsy fundamentals

No longer being deeply oversold by investors, I have to assume that the oil services group is now largely trading up on the improving price of crude, which has risen more than 60% from its February nadir of around $42 per barrel. (I'm ignoring the exaggerated effect of the January futures contract expiration.) This is exactly why I'm nervous about these stocks today.

And what do Rex Tillerson and Daniel Yergin say?

Rex Tillerson, chief executive of ExxonMobil (NYSE: XOM), said fundamentals didn't justify $70 oil in September 2007. After the demand destruction that's followed, he obviously doesn't think much of this latest rally in crude, calling it "just a bet" on the part of traders.

Daniel Yergin, author of The Prize and chairman of IHS Cambridge Energy Research Associates (CERA), is in pretty much the same boat, pointing to a 3 million-barrel-per-day drop in demand to pre-2005 levels. He attributes oil's performance more to the stock market rally and the falling dollar.

If Yergin is correct on this point, and I believe he is, then there are two reasons to be concerned.

- Brewskie

Japanese Oil Demand in Death Spiral

I hope you're not drinking something this moment: you're going to spit it all over your computer's screen when you read this:

Japan may be forced to shut more than a fifth of its refining capacity, at least 1 million barrels per day, in the next five years as oil demand falls faster than expected, the head of the country's top refiner said on Tuesday.

Nippon Oil Corp President Shinji Nishio also told the Reuters Energy Summit that the company, after its planned merger with Nippon Mining, might shut in 200,000 bpd more capacity than originally planned by 2015, underscoring the rapid demand erosion in the world's No. 3 consumer.

Japan's trade ministry projects oil sales will fall by an average annual 3.5 percent to 168.2 million kl (2.9 million bpd) in the year from April 2013, from a total 3.46 million bpd last year. It has the capacity to refine 4.8 million bpd.

"Unless we cut the capacity by (1 million bpd), the nation's production will not be at an optimum level," he said. "When you think about the future beyond (2013), we will have to cut even further."

Total oil sales in the year ended March 31 slumped 8 percent, the sixth straight year of decline, as the global economic crisis has slowed industrial activity, adding to already waning demand caused by an aging population, a shift toward smaller, fuel-efficient cars and drive to embrace greener energy sources.

- Brewskie

Oil Storage 'Bout Ready to Burst

There's no shortage of oil in storage tankers. Here's something I found on Bloomerg:

Global storage constraints are limiting the ability of most countries to stockpile more oil this year while China prepares to enlarge its reserves, the energy chief of the world’s third-biggest economy said.

“Crude stockpile facilities at most countries have been fully filled in the first half,” Zhang Guobao, director of the National Energy Administration, said in Beijing today. “It will be difficult for those countries to greatly increase crude reserves in the second half as they did in the first.”

[...]

Oil’s slump in New York from $147.27 a barrel last year has boosted fuel purchases for stockpiling. Even tankers are now being used for storage because of limited on-land capacity, Zhang said. Since November, crude has risen 52 percent to as high as $68.29 a barrel -- still at a discount of more than 50 percent to the historic peak.

“The crude price increases earlier this year could have been partially triggered by increased stockpiling by countries including China,” Yin Xiaodong, an oil analyst at Beijing-based Citic Securities Co., said by phone today.

A substantial portion of the crude-oil trade in the first half was because of increased global stockpiling, Zhang said at a media briefing today. Those importing countries weren’t actually consuming the oil they bought, he said.

“Analysts should pay attention to this phenomenon when predicting the future trend of oil prices,” Zhang said.

Time Magazine also has this:

Oil demand in rich countries has crashed since the onset of the economic crisis last year, and is now at its lowest level since about 1981, according to the Paris-based International Energy Agency. U.S. oil inventories — the stored surplus — this month reached their highest level since the 1980s. And about 2.6 billion barrels are currently stored in commercial tankers around the world. "There is some risk we will run out of storage space in the next four to six weeks," says Simon Wardell, director of global oil at IHS Global Insight, an energy-forecasting company in London. To oil-rich countries that possibility evokes grim memories of 1998, when the Asian economic crisis sent demand plummeting, driving world oil prices down to $10 a barrel. "If we run out of storage it could prompt a collapse in the price," says Wardell.

And a few weeks back even the Oil Drum posted this:

My analysis indicates that in recent months, as much as 2 -3 Mb/d of global petroleum supply has been used to build inventories. This is about to come to an end, because available storage is getting closer and closer to full and contango has begun to flatten. When additions to storage cease, the resulting drop in demand can be expected to lead to substantial downward pressure on oil prices.

Brewskie comment: For the record, I hardly think $60-something oil is expensive, nor do I view oil in the $70- or $80-range expensive. My lifestyle is of such that I always attempt to minimize my driving. Even in the face of last year's oil prices, it hardly hit me: my non-hybrid Civic squeezed 44 mpg last summer on a road trip - with the air conditioning on! So I'm not fretting about this, it's that something shady seems to be up considering the glut sitting in storage, and memories of last year's Wall Street raid.

Added: Naturally, the shitty dollar isn't helping.

- Brewskie

The Rats will Develop "Speculation Diabetes"

I've made several posts in the past remarking oil's gluttenous supply, the nature of speculation reasserting itself into the market; now some analysts are seeing light of this, that a soon oil price drop will formulate. It turns out - surprise, surprise! - OPEC is backpedaling. Read below or click the link:

After oil passed $60 a barrel for the first time in six months, the New York Mercantile Exchange’s fastest-growing options trade in July is for a 18 percent drop.

The number of options to sell oil at $50 a barrel for July settlement rose 22 percent last week to 24,948. Traders expect prices to fall because U.S. crude inventories are 1.8 percent below the highest level in two decades, the International Energy Agency says demand is falling the most since 1981, and there’s enough unsold crude stored in offshore tankers to supply the U.S. for a week. Oil traded as high as $62.16 today in New York.

“Oil prices are rising way ahead of reality, way ahead of fundamentals,” said Eugen Weinberg, a senior commodity analyst at Commerzbank AG in Frankfurt. “It would be more reasonable for prices to drop a little and correct to $50 or below.”

Crude jumped as high as $62.26 a barrel on May 20 on optimism that the worst of the global recession and the Organization of Petroleum Exporting Countries agreed to cut supplies by the most on record. Now, economic reports are increasing speculation that the world economy will continue to sputter, and OPEC, which meets May 28 in Vienna, has yet to complete the supply curbs it promised in December.

[...]

The number of contracts to sell July oil at $50 a barrel, or so-called put options, tripled to 24,948 on May 21 from May 7, according to Nymex data. The second most-popular contract for July settlement is the right to sell at $40, with 23,254 outstanding. There are almost twice as many positions that profit if oil falls as low as $40 a barrel as there are bets on a rise to $70.

[...]

Japan’s economy, the world’s third-largest oil consumer, shrank at a record 15 percent pace last quarter as exports declined 26 percent. The European economy contracted at the fastest pace in 13 years, and the World Bank said optimism for an economic recovery in China may be “premature.” The U.S. and China are the biggest oil users.

‘Large Correction’

“Given the high level of crude inventories and contraction in activity in advanced economies, we still expect a large correction from these levels,” said Harry Tchilinguirian, the senior oil market analyst at BNP Paribas in London. “A low $40s level is still possible” before the end of September, he said.

Oil traded as low as $59.53 today in New York on speculation that OPEC won’t announce more production cuts this week even as the global recession curbs fuel demand. Among oil analysts, 25 out of 27 surveyed by Bloomberg predict OPEC will maintain a target of 24.845 million barrels a day at the Vienna conference this week.

The 11 OPEC members outside of Iraq produced 25.81 million barrels a day in April, an increase of about 225,000 from March and the first increase in nine months, according to OPEC’s latest monthly report. Those 11 collectively made 77 percent of the 4.2 million barrels a day of planned output cuts, down from a revised 82 percent for March.

- Brewskie

The "Floating Glut" Grows

Even with my hectic schedule, I can still find a bit of time to make a post.

Oil's crept up a bit lately, huh? Big deal. Remember last year when we thought $80 a barrel was cheap. That's right - don't forget it.

Anywho, I was taking a peek at things and you wouldn't know the ever-present glut has shrunk; in fact, it's grown. Here's a bit from Investor's Chronicle:

Rotterdam is Europe's largest port and refinery centre, with land-based storage for an estimated 75m barrels of oil. However, its tanks are believed to be nearing capacity, leaving inbound tankers with nowhere to discharge their stocks and effectively forced to serve as expensive floating storage vessels.

Many tankers have been forced to drop anchor outside the port (I saw lines of tankers moored off the Dutch coast during a recent flight to Amsterdam) with others lying idle off the coasts of Texas, Nigeria and southern England. Some 30 to 50 supertankers, each carrying around two million barrels of crude, are now believed to be serving as floating storage, together with a similar number of smaller vessels carrying refined products. That's around 100m barrels of oil, more than enough to satisfy one day's total global consumption.

So the "floating glut" has grown from 80m barrels to 100m barrels.

- Brewskie

Oil's Got a While in the Infirmary

Regardless of the low oil price environment, it's still fun and reassuring to know that, oil will likely be sitting in the outhouse for the rest of the year, with nothing - not even mosquitoes - giving a notice or care of which dank hole it's lost in. I planted an earlier post on why the oil bulls may be gone for a while - and I have this rationale: crapping demand, excess capacity (OPEC production is down from record production of 32.82 mbpd last year to 28 mbpd last March; remember, Saudi Arabia will add surplus capacity this year, and has more on the way), plus the eradication of speculative rats.

Here's an interesting bit I discovered: while OPEC is trying to reinvigorate $80 per barrel dreams - like the federal government is trying prop Wall Street Banks from the reeking dead - Russia are Brazil are contrarian players of infuriation. Read below:

Well, part of the plan is successful. U.S. imports from OPEC fell 818,000 barrels per day or 14% to 5.02 million barrels per day in January from a year earlier. But if you remember the old adage, "While the cat is away, the mice will play," OPEC's plan is not holding up too well. When OPEC cut production, Russia and Brazil jumped in and did the opposite, namely increase exports to the U.S.

Brazil more than doubled its exports to 397,000 barrels per day, while Russia increased its to 157,000 barrels per day. Russia even lowered its export duty to $15.00 per barrel from $15.70 per barrel. Russia has been trying to get a foot hold in the U.S. market for years, while Petrobras is very aggressive in its marketing policies and plans to spend $174.4 billion through 2013 on increasing production and exports.

So where are we now? Well, inventories have climbed to 1.65 million barrels in the week ending April 3, the highest level since July 1993. Supplies are 12% above the five-year average and the equivalent of 25.4 days consumption.

Check this out - America's driven miles continues to decline:



Now, to further affirm my promulgation, I will post this recent Seeking Alpha post of some recent OxAn rationle:

Producers argue that oil prices need to remain high to fund the investment necessary to meet future oil demand, an important part of which is replacing production lost to depletion, OxAn says in Outlook for oil prices looks weak. They say that at current price levels investment will be insufficient. Once oil demand growth resumes, OPEC’s production cuts will be quickly eroded as will the level of surplus capacity. The attraction of this argument is that it justifies high oil prices no matter how bad or deep the current crisis because it is future shortages that are the imperative rather than the present.

“However, with supply relatively abundant and OPEC finding each incremental reduction towards its output goal of 24.845 million b/d harder, how demand evolves is critical to the price outlook. It is far from certain that a return to the pre-credit crisis ‘peak oil’ paradigm of ever-rising commodity prices will be quick, or will
happen at all.”

It adds,

Consumer wealth. Part of the ability to absorb rising oil prices without impacting demand was that oil had become relatively cheaper in terms of the proportion of consumers’ disposable income that it absorbed.

However, with rising unemployment, economic contraction and falling wage inflation, oil continues to be perceived as expensive, despite having lost two-thirds of its value since its peak.

And...

There is a tendency to assume that under ‘normal’ economic conditions, oil demand will always rise everywhere, and for developing economies it will trend towards per capita levels seen in the OECD. However, both Japanese and European oil demand was falling or static before the financial crisis, while neither have nor are likely to see the same level of car ownership as the United States.”

So there you have it. Not only are the herd of oil bulls not stampeding, it's time for the bulls to take a one-way trip to the Smithfield morgue.

- Brewskie

Oil Bear to Eat $28 Oil This Spring?

While Ghawar Guzzler has been cocksure about America's abundant natural gas situation, it's been somewhat less forth-coming about oil's price and supply - though its been adamant that low prices and good supply should continue for some time. The recent run-up in price over $50 (no biggie; we thought $80 per barrel last fall was cheap - remember?) seemed to be caused more by the shitty dollar, as opposed to "supply and demand" fundamentals; especially in the face of declining demand, ongoing gluts (think ocean tankers and Cushings, OK), and no sign of normal appetite for at least the rest of the year.

One great dame, Stephanie Aymes, is growling like a bear. She sees $28 a barrel by the second-quarter, and possibly $16 or lower after that. Time will tell if she's correct (she's forecasting $71 a barrel next month), but I thought I'd post this anyway (link):

Crude oil is set to drop to $28 a barrel in New York in the second quarter, according to technical analysis by Societe Generale SA.

Prices may rally until meeting resistance at $71 a barrel and then plunge to their lowest since 2003, Societe Generale analyst Stephanie Aymes said, using charts that make use of Elliott Wave theory.

“The market can continue to bounce, but in the next month the bear-trend will resume,” Aymes said in a telephone interview from London yesterday. Her prediction that oil will fall to $28 was made in the Paris-based bank’s technical analysis for commodities in the second quarter.

Aymes’s analysis using the Elliott Wave indicates that prices will rise, a rally bound by the $71 a barrel level last traded in November, and then drop to $33.20, a support shown by a trend-line of low points reached in the past 10 years. A drop below $33.20 opens the way for a further decline to a range between $28 and $25, her charts show. After that, support comes at $16.50 and $10 a barrel.

- Brewskie

Increased Non-OPEC Production May Frustrate OPEC's Efforts

OPEC's dreams of $80 a barrel of oil may not be coming around for a while...

Total oil supply, excluding OPEC, will stand at almost double the oil group's supply in 2009, according to a new report.

Releasing the data to coincide with yesterday's formal 152nd meeting of its members, OPEC said the non-Opec producers, including Russia, the US, Vietnam, Brazil, Australia, New Zealand and India, will meet much of the supplies shaved off by OPEC cuts

In what may serve as another blow to oil prices, OPEC said around 40 very large crude carriers (VLCCs) full of oil are currently floating in the seas. Analysts say this will ensure that a million-barrel-a-day cut may take two months to make an impact on prices.

The data presented by the organisation showed that the total crude supplies into the global oil markets, other than the OPEC crude to which the cut is applicable, will stand at 55.54 million barrels per day. Demand for OPEC crude is to average at 29.1 million barrels a day, the report said.

While OPEC more than 40 per cent of the global oil demand, it would meet 34 per cent this year, data showed.

[...]

Robin Mills, a Dubai-based oil economist, said Russia has become a key contributor to the still-strong non-Opec supply. "They have always shown their willingness to co-operate with OPEC but have later opted only for token cuts," he said. Russia is the world's largest producer of oil. OPEC estimated Russian oil production in 2009 will average at 9.65 mbpd.

The cartel expressed apprehension the country will increase oil supply this year. "The uncertainty over Russian oil supply remains high as various reports suggest a possibility of a tax cut which may partially support operators' spending and ultimately improve production," OPEC said.

[...]

OPEC said the US supply will grow by 200,000 barrels a day this year. Besides the US, countries like Canada and Mexico may increase production, OPEC said. Supply from Canada is expected to increase by 70,000 barrels a day this year.

[...]

Brazil will be another major contributor to non-OPEC supply this year. "Brazil's supply is to increase 160,000bpd in 2009," the report said. Oil supply from Latin America is projected to average 4.28mbpd in 2009, an increase of 0.2mbpd from a year earlier.

[...]

The estimates still put the number of VLCCs being tied up in storage in February at about 35 to 40 vessels, making up seven to eight per cent of the global VLCC fleet. Mills said this would ensure that any announcement by OPEC to further shave crude supply will take at least two months to make an impact.

"Each VLCC has a storage capacity of two million barrels of crude. Forty tankers would mean 80 million barrels. That's almost a day's consumption of oil. A million barrel a day cut should therefore take 80 days to have an impact on prices," he said.

- Brewskie

Black Goo Still Oversupplied by 1.5-1.6 mbpd: Venezuela

This from Rigzone on the oil glut:

OPEC members need to fully comply with the group's existing oil production cuts, as the world oil market is oversupplied by between 1.5 million and 1.6 million barrels a day, Venezuelan Oil Minister Rafael Ramirez said Friday.

Onshore oil inventories are reaching peak levels, while floating oil inventories also are building up, Ramirez said.

The Venezuelan oil minister made his remarks to reporters as he arrived in Vienna Friday. Members of the Organization of Petroleum Exporting Countries will meet here Sunday to review the group's production policy and determine whether another output cut is necessary.

"Evidently there is still a lot of production in the market, and we will meet to discuss how to drain this," Ramirez said.

OPEC announced three production cuts in late 2008 totaling 4.2 million barrels a day. Many analysts estimate the group's compliance with those reductions at around 80%.

Asked whether Venezuela would propose further cuts in OPEC's production, Ramirez said his country will insist at Sunday's meeting on strict compliance of production quotas.

"At the moment, we don't have full compliance," he said

To remove excess oil from the market, OPEC will need to strive for 100% compliance, and "then evaluate the destruction of demand and see whether additional measures are needed," Ramirez said.

- Brewskie

Dr. Clifford Wirth's Big Mistake Super Sized My Oil Glut

(Fair warning: this is a long one, so grab a drink:))

Dr. Wirth screwed up bad. He tried to pull off a miracle upset for the peak team on the game's last play, but his Ph.D. couldn't save him from his own stupidity. Yesiree... after he "Lambeau Leaped" into the stands to celebrate his 45-yard touchdown run... he realized, after the fans' clawing wrath, he scrambled into the wrong end zone and the clock axed his team!

I first remembered Dr. Clifford when he roamed around the halls of the Internet last year, incessantly screaming this blathering doom prophecy like an annoying banshee:

"Oil prices are set to skyrocket: According to energy investment banker Matthew Simmons and most independent analysts, global oil production is now declining, from 74 million barrels per day to 60 million barrels per day by 2015. During the same time demand will increase 14%.This is equivalent to a 33% drop in 7 years. No one can reverse this trend, nor can we conserve our way out of this catastrophe. Because the demand for oil is so high, it will always be higher than production; thus the depletion rate will continue until all recoverable oil is extracted. Alternatives will not even begin to fill the gap. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining
equipment..."

This is what happens when you become Mexico's finest peak freak: you don't realize that you can run tractors/combines (hydrogen and electric), trains (you're embarrassing yourself, Clifford), ships (it's the armed forces, but they gave us the internet), semis, and mining equipment on electric power! Didn't he know diesel locomotives are actually diesel-electric hybrids - have been for decades? The diesel engine is, in effect. a diesel generator; we’ve had electric trolleys since the 19th century.

Anyway, Dr. Clifford recently went to Tijuana to load up on peak oil kool-aid for his best performance; this is what he blathered while hooked up to the half-barrel...

“Global crude oil production had been rising briskly until 2004, then plateaued for four years. Because oil producers were extracting at maximum effort to profit from high oil prices, this plateau is a clear indication of Peak Oil.Then in August and September of 2008 while oil prices were still very high, global crude oil production fell nearly one million barrels per day, clear evidence of Peak Oil (See Rembrandt Koppelaar, Editor of "Oil Watch Monthly," December 2008, page 1)”

Since peakers have a memory retention of a bumble bee when recalling their failed predictions, I decided to make sobering sense out of info. seen through kool-aid goggles. First, he had the wrong address (you can find it here); secondly, his puzzle was solved in a matter of minutes, plus I made a bigger discovery - additional light on the size of the glut and how much bigger it could have was gained. Let's start with this:


Okay, production dropped by a million in September, and another thing Clifford didn't mention, it dropped more than a million the month before. This is nothing to worry about and everything will be explained in a bit. Let me explain August: The August drop was caused by a sharp, but coincidental and momentary drop in production by a group of non-OPEC producers. Such drops are known to occur, with instant rebounds coming a month or so down the road. For example:

Aberizan took an August vacation in 2007, and rebounded in September with no effect; and production went into the infirmary last year, around August, taking roughly 500,000 bpd with it. This chart only goes to October.Also among our list of guilty partners, we have (EIA goes to October):

And Norway with four weeks of European vacation in August...

But non-OPEC was back in the swing of things by October; look, by November (EIA goes to October) production was nearly healed to prior levels, and were fully functional by X-mas. Onto September...

The month Dr. Wirth referred to was easy. One perpetrator was primarily responsible: the United States. An all-star hurricane season, led by Captain Ike, barreled through the Gulf of Mexico. Where does America get 25% of its 5 mbpd (2008 numbers; crude only, no liquids) of production? You're a genius! Check out the graph below and pat your intelligence on the back:

America’s fat ass raced against Nicole Richie to see who could lose the most weight in a month. All hands to the star-spangled winner of the Biggest Loser: One Million Barrel Edition!

Now for the real kicker. A drop of over 2 mbpd of production over two months is a major cut, especially when oil prices were high. Yet, despite the added jet propulsion from the drop, Wiley E. Coyote's jet pack, fueled by expensive oil, couldn't keep him falling to the ground from the upper stratosphere - because it was built by greedy speculators, not honest Acme factory workers:)

If these production cuts had not occurred, OPEC and Russia would have been flabbergasted with even bigger financial problems; would Russia have had deja vu of Boris Yeltin's spectre laughing his roasted drunk ass off? The more than 2 mbpd drop was a blessing in disguise for these lads. Remeber when Iran proclaimed oil markets were oversupplied by 2 mbpd late last year? Just think of how much more things could have been bloated...

The oil game was blowout, the peak team has a long off-season to drag out before the Mayan doom date. They're pissed off at the current collapse-trend driving doomers' hearts into primal urges - the finance crisis. Dr. Wirth, your peak oil career is over, there's no room for you on the team's bus except in the septic tank. It's time to take one for the team.

Meanwhile, Dr. Wirth, if you ever come to your senses and decide to come back to the states, we have one career perfectly suitable for your background (Clifford Wirth taught public policy and public administration). You can start by helping these people plan sustainable communities:

- Brewskie

Oil Storage Near Bursting Point

The global oil glut is filling up oil storage facilities and oil tankers to the bursting point. Sooner or later, that oil will need to be dispelled - perhaps at a discount. What happens then?

From the article:

NEW YORK - Supertankers that once raced around the world to satisfy an unquenchable thirst for oil are now parked offshore, fully loaded, anchors down, their crews killing time. In the United States, vast storage farms for oil are almost out of room.

[...]

The oil tanks that surround Cushing, Okla., in a sprawling network that holds 10 percent of the nation’s oil, have been swelling for months. Exactly how close they are to full is a closely guarded secret, but analysts who cover the industry say Cushing is approaching capacity.

There are other storage tanks in the country with plenty of extra room to take on oil, but Cushing is the delivery point for the oil traded on the New York Mercantile Exchange. So the closer Cushing gets to full, the lower the price of oil goes.

[...]

More than 30 tankers, each with the ability to move 2 million barrels of oil from port to port, now serve as little more than floating storage tanks. They are moored across the globe, from the Texas coast to the calm waters off Europe and Nigeria.

“It gets expensive to do this,” said Phil Flynn, an analyst at Alaron Trading Corp. “If you’re sitting on a bunch of oil and you’re stuck paying storage and insurance, and you can’t find a buyer, you may have to sell it at a discount just to get rid of it.”

On the other hand, as storage units on land have filled up, the companies that own the tankers have profited. Tanker companies charge an average of $75,000 a day, three times as much as last summer, to hold crude, said Douglas Mavrinac, an analyst with Jefferies & Co.

- Brewskie