Monday, June 8, 2009

What is going on with crude oil



Crude oil has moved from a low of $35 per barrel to no close to $70. This is a 100 percent increase over less than 4 months. Where is the demand coming from? We know that production has not decreased so there is a not a supply shock. We now it may not be from demand because inventory levels are very high. Inventory is literally held in large tankers, so there is a strong difference between supply and demand.

Our friend and energy expert Tom Finlon at the Energy Analytics Group make a strong case for lower prices, but prices are moving higher.

The magnitude of fundamental data supporting our view is overwhelming, specifically:
• Total US petroleum demand for the 4 weeks ending May 29th fell 7.7% on a year on
year basis;
• The drop in total US petroleum demand for the week was 900 KBPD, the largest drop
since the second week of January;
• The current level of daily demand is 17.7 MBPD, the lowest level since May 1999;
• US Gasoline demand fell 518 KBPD this week, the sharpest drop since January 2005;
• Overall US petroleum stocks are now 134 MB (14%) higher than last year.
Approximately half of the excess is in Crude Oil the other half in refined products,
specifically Distillate and Fuel Oil. Gasoline is the only product stream in deficit to last
year;
• OPEC acknowledges that there is more than 330 MB of excess inventories globally;
• US Distillate inventories have grown by more than 10 MB in the last seven weeks;
• Demand for Distillate in the US stands at 3.55 MBPD, the second lowest level recorded
in 2009;
• More than 90 MB of Distillate is in floating storage in the US and Europe. We are just
entering the period of the year when Distillate demand falls the most;
• Russia, a guest observer at OPEC meetings last year, has raised Crude Oil production to
9.85 MBPD, 130 KBPD higher than their production of a month earlier.

So why hasn't it happened? Some could say that the driver are index players buying futures but this doe snot explain the contango in the market.

I am looking for the answer.



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