Friday, 12 July 2013

Oil Musings 12-7-13



When you look at commodity prices on a daily basis over a period of several years your brain becomes attuned to the pattern of price moves at an almost intuitive level and you don't need to read the headlines to see a pattern forming or a trend line that is broken. 

On reading last week’s EIA weekly report the level of draw down made me blink and re-read it twice. Over 9 million barrels down. Still I thought it’s likely a one off aberration and we will see a smaller more normal draw down or even a slight build in the following week's report. 

However on reading this week’s report it was clear that this was something out of the ordinary. U.S. crude stockpiles fell 20.2 million barrels, or 5.1 percent in the last two reports combined, the biggest two-week plunge since at least 1982. 


This really had me scratching my head. Higher refinery utilization (92.4 percent) is a small part of the answer & so is a slight increase in demand. A bigger factor still might be the flooding in Alberta, but even all factors combined cannot account for such a big drop. 

Also of note is the narrowing spread between Brent Crude & WTI (West Texas Intermediate) It was $1.99 on the day of the report. It seems that is not the only unusual activity in the oil markets. 

Bloomberg reports that bookings of the largest oil tankers jumped to the highest for the time of year since at least 2007. In fact it’s the second consecutive month when bookings have been at the highest for the period. 

Traders and oil companies hired 126 very large crude carriers to load in July, The vessels each carry 2 million barrels. So that means we’ve got 252 million barrels arriving in July alone with a similar number being ordered in June. 

Yet there has still been a huge drawdown So much for US energy independence. Somehow it feels like 2008 all over again cue media calls to deal with the “evil speculators”. 

Update 18-7-13:

Another big draw down today although at 6.9 million barrels it's not as dramatic as the last two weeks. Interestingly there was a decrease in demand with gasoline consumption down 570,000 barrels a day, or 6.1 percent.

The refinery operation rate increased to 92.8 percent, up 0.4 percentage point from the prior week, but this says to me that there is a either a decrease in imports or a decrease in US production or both.


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