Post by
VimyJ »
https://forums.nicoclub.com/vimyj-u238.html
Sun Apr 18, 2004 5:51 am
Here is a post from one of the energy forums I peruse with more figures than I provided.
"Oil overhangby: denintex 06/25/04 02:06 pmMsg: 44891 of 44913 Any “oil overhang” depends on how one looks at it and what one’s time frame is. In past weeks, crude inventory has been building, but it is still 4.5 million below the 5-year average, so measured by the 5-year standard, there is currently no overhang. But more importantly, supply and demand have dramatically changed from 5 years ago. Then, there was: 1) large OPEC surplus production; 2) elephant fields not in state of the decline they are in today; 3) w/w demand not yet spiked by the “China, India” experience; 4) no significant threats of terrorism to existing supply; and 5) sufficient tanker capacity for oil transport. Because this has all changed, today’s inventory should be much greater than the 5 year inventory average to compensate for these supply/demand differences. Instead, inventory is roughly the same as 5 years ago, an irrational result given that production is far less and demand is far higher. And this spells trouble if one has the foresight to look 10 weeks down the road, when some suggest that the 3 million barrel a day rise in 4th quarter demand will be greeted by insufficient supply. Five years ago, such a prospect would have been laughable -- no more. So how does one view this pronounced “overhang?” An “overhang” that disappears into shortage in 10 weeks is no overhang at all. It is shortage.
Also, oil inventory should not be considered in isolation. About eleven weeks ago, gasoline inventory stood at 8.5 million below the 5-year average; this week it is 9 million below. Distillates have gone from 2.6 million below, to 7.3 million below. To the extent that any existing perception of an oil “overhang” results in a temporary lowering of gasoline prices, this will spur greater demand, making it more likely that the gasoline and distillate inventory shortages in future weeks will get worse, not better. And then there is ng. Myopic traders often get thrown off base by 10 day weather patterns, which often change in forecast in 3 days. We have seen these “cooling trends” this year, but up to now, injections have been strongly bullish compared to last year, reflecting the y/y bullish differences caused by less production, greater demand and less imports, all of which are now in a state of compounding year to year. And it is this compounding effect that renders the past storage standard of about 3.1 tcf an outdated standard. Analysts continue to recite the same inventory goal for storage sufficiency year to year, as though the year to year compounding effects of 4-5% production declines, import declines, and higher demand result in no need for greater storage than in the past. At some point, this “asleep at the wheel” approach is going to catch up with us. Traditionally, insufficiency in just one category of fuel supply is enough to worry traders into a state of keeping all of the fuels in a higher pricing range. We saw that this spring, with gasoline acting as a catalyst to higher oil prices. But now, there are not only worries about gasoline inventory, but also ng inventory, distillate inventory, and 4th quarter oil inventory, not to mention coal shortages. In short, I see no “oil supply overhang” that will act as a catalyst to any significant pricing decline in oil or gas. Instead, I see just the opposite -- with concerns about supply deficiencies in all of the fuels having a stabilizing effect on pricing short-term, and acting as a catalyst for far higher pricing the closer we get to Fall."
