This Week in Petroleum 12-5-07

Update following the release:

Big surprises all around this week:

Summary of Weekly Petroleum Data for the Week Ending November 30, 2007

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 8.0 million barrels compared to the previous week. At 305.2 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories increased by 4.0 million barrels last week, and are below the lower end of the average range. Both finished gasoline inventories and gasoline blending components inventories increased during this period. Distillate fuel inventories increased by 1.4 million barrels, but are in the middle of the average range for this time of year. propane/propylene inventories decreased by 0.5 million barrels last week. Total commercial petroleum inventories decreased by 3.8 million barrels last week, and are in the upper middle of the average range for this time of year.

U.S. crude oil imports averaged nearly 9.4 million barrels per day last week, down 980,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 10.0 million barrels per day, or 121 thousand barrels per day more than averaged over the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged nearly 1.2 million barrels per day. Distillate fuel imports averaged 299,000 barrels per day last week.

I don't recall ever seeing a crude inventory drop that large. If I had a little more time today, I would check the history, but that drop should certainly rank up there among the biggest. (Note: I did go back and check, and there was a drop of just over 8 million barrels in the 2nd week of December last year).

Interestingly, the markets aren't reacting much to this drop, or to the news from OPEC suggesting that they won't increase output. The inventory news is offset a bit by the fact that there was a gain at Cushing, but you would think this combination of news would put oil back up over $90. The price briefly popped up above $90, but as I write this, oil has dropped back to $88.72. A month ago, it seemed like every bit of news drove prices higher, but it now looks like we are operating in a different environment.


What a volatile week it's been. In last week's TWIP, with oil trading in the mid-$90's, I wrote that I expected it to drop back into the $80's soon. Following last week's inventory report, WTI did take a dive, but then a pipeline explosion in Minnesota - in which two people were killed - drove prices right back over $95. But the price could not be sustained, and signs of increasing supplies and softening demand, coupled with the possibility that OPEC would bump up production at their December 5th meeting, resulted in a drop into the $80's by the end of the week. This was the steepest weekly decline in more than two years.

Will They or Won’t They?

Overshadowing this week’s inventory report is the OPEC meeting on December 5th. There have been so many conflicting statements – at times even originating from the same country – that it is hard to determine whether members will agree to increase production rates beyond the current quotas.

At one point Saudi oil minister Ali al-Naimi said "There is absolutely ample supply." At another time, he said that "the field is wide open" regarding the possibility of an increase. Here are some excerpts from a couple of news stories on the upcoming meeting:

Oil Prices Edge Up Ahead of OPEC Meeting

Prices rose and fell throughout the day as differing statements were reported from delegates of the Organization of Petroleum Exporting Countries arriving in Abu Dhabi, United Arab Emirates, for Wednesday's meeting.

Oil prices have dropped about $10 in one week on the belief that OPEC has all but decided to boost production. But the price drop itself has raised questions about whether oil ministers will follow through.

Recent OPEC comments have been divided, with ministers from Venezuela and Qatar suggesting there's no need to boost supplies, while ministers from Indonesia, Nigeria and Kuwait say they're still open to increases.

Saudi Oil Minister Ali al-Naimi, possibly the most influential member of the cartel, has struck a neutral tone, telling reporters this weekend that "the field is wide open."

Another article offered up predictions by analysts not only of the inventory report, but also of whether OPEC would increase production:

Oil rises, ends slide as OPEC hike seen unlikely

A Reuters poll of 23 banks, traders and funds on Monday showed 12 participants did not expect OPEC to raise output. Late last week, a similar poll had 18 out of 24 participants expecting an increase of around 500,000 barrels per day.

A poll of analysts by Reuters ahead of U.S. inventory data to be released on Wednesday showed crude stockpiles likely fell 800,000 barrels in the week to Nov. 30 due to the pipeline disruption. Distillate stocks were seen down 300,000 barrels and gasoline inventories up 1.3 million barrels.

It's funny how perception drives oil prices. A pipeline blows up, traders perceive a shortage, and the price spikes. Then, perceptions that OPEC will boost supplies drive prices back down. And the irony of course is that the pressure on OPEC to boost production is easing as prices fall - yet prices are falling because they are expected to boost production. That makes it hard to predict how strongly the market is going to react if they don't.

But at this point it appears that most members have come out against a production increase. If they decide against an increase, and the Fed cuts interest rates in a few days, we may yet make another run at $100 before the year is out.

Upcoming EIA Conference

Doug MacIntyre of the EIA dropped a note to inform us of an upcoming EIA conference on important energy issues. Doug was the former author of TWIP, and is now heading the division that does the EIA's Short-Term Energy Outlook.


Since this blog item is about the data EIA puts out every week, I hope you and your readers don't mind if I plug an EIA Conference that will be held in Washington, DC on April 7-8. Session topics are varied, but include Peak Oil and other topics your readership might be interested in. The conference itself is free and has some very big names that have already agreed to be speakers. For more info, go to:

Doug MacIntyre, EIA

Right now, I am scheduled to be in the U.S. during the first part of April, and I am hopeful that I can attend.

It's funny how perception drives oil prices.

Seems like the same thing happens with stocks. Fear and greed seem to run the markets...


8 MBD primarily came from Gulf and East coasts, so the pipeline problems in Minnesota weren't to blame in those areas. Still the overall report would be several million barrels higher, and we would have had a net gain in overall inventory instead of the about 3.5 MB drop.

However the decline is still troubling. Areas that have been getting cheap gas up until very recently are likely to start paying 15-30 cents more sometime this winter, despite the rise in Gasoline inventory. Warm weather in those parts could raise the price more. Quite frankly 8 MB drops are unsustainable. Another one and OPEC sitting on its hands and 100 is all but assured before Xmas. It would take much less than that.

Bernanke has to cut too, so we really are in for an interesting last few weeks of the year. Got through November without seeing 100, don't think we'll make it through December, although it would be nice to wait until first week of January.

wow; 2008 going to be interesting.

And,OPEC prod DOWN for NOV(31.14 vs 31.17 for Oct/07).OPEC10 down 50m(27.09 vs 27.14).I guessed +100m.OPEC10 target is 27.25.Everyone tip-toeing around the UAE issue.No press on this yet.

Well, I continue to watch the parking lot for indications that people are using more gasoline but data suggests they are staying home. If this phenomenon is being played out across the US could it indicate a growing conservative movement?

I checked with the local Home Depot and sales of florescent bulbs are up, even thought they are higher priced than incandescents.

If Crude inventories are dropping while gasoline inventories are dropping much slower, then I suggest that conservatism, ( or lack of spending money), is growing. The supply side price of crude would have to drop if demand is falling.

Can anyone suggest where I might look for more data on a trend towards conservatism?

Hmmm... an 8 million barrel decline in crude inventories?

and a 4 miilion increase in gasoline, so it takes 2 barrels of crude to make 1 of gasoline, sounds about right.

Especially if that crude is a bit sour...makes sense?

Yeh, one would think from just the headline data that we burned through 8 million barrels of crude to make the 4 million barrels of gasoline...

But the report said:

U.S. crude oil refinery inputs averaged nearly 15.5 million barrels per day during the week ending November 30, down 20,000 barrels per day from the previous week's average. Refineries operated at 89.4 percent of their operable
capacity last week.

Then later said:

Crude Oil Input to Refineries 15,216 15,009 1.4 15,158 15,232 -0.5

The top part referenced last week, the last part is YOY.

It looks to me like we ramped up our imports of gasoline over this period by a tad over 4M, and lost 8M barrels of crude inventory. Its not clear to me where this is in the report.

What really confuses me is that given the antics of the market over the last couple of hiccups, this one gets ignored. What would have sent oil a couple of weeks ago well over $100, today gets ho-hummed and dropped another buck or two to $87 as I type this. Its like the neighbor's car alarm that keeps going off in the middle of the night - its just making noise. Go back to sleep.

The Saudis handled this one well. I think the market was afraid SA had hit their geological production limit. Just one rumor from them about a production hike - backed up by Petrologistics reports of increased tanker activity - and oil plummets.

What makes it even worse is our Government's take on increasing taxation of our energy infrastructure when they need the money for their increased costs of expanding the infrastructure for processing ever more heavy sour crudes and developing marginal reservoirs.

Its my belief that people think we are crying wolf, when there is no wolf - only profits. I believe many scientists here have seen the wolf, but everytime they point it out, others hide it because they don't want the ensuing panic of proof of a bona-fide indestructible wolf in the midst of their flocks.

But then, I am a scientist too, and have known enough scientists to know their motivations are different from, say, the managerials - who use different weightings in what they think is important.


Cushing inventory levels are what?

Anyone know?

Has anyone ever seen an 8 million bbl drawdown?

As refinery utiization is still below 90.

Cushing is up at 15.9. Seems that the big draws were on the Gulf Coast (PADD III): from 159.7 to 153.8. On the East Coast (PADD I) a draw too: from 16.8 to 14.7.

Cushing up 0.7 by EIA

Drop? What drop? If you look at the back months, there was a move closer to contango.

Dec 2010

We've been moving fairly steadily and consistently back towards contango for the past three weeks or so now. I'm kind of surprised no one mentioned it before.

Anyone want to punt on what it means, or will mean? Anyone want to suggest we won't be in contango in a few weeks time?

Been watching that myself.

Could be a short-term effect, much like it has been in the past when prices drop pretty quickly on the front-month. Except for last year, the contango periods have been pretty short.

Brent is also back to trading at a slight premium to WTI on the spot market (it spent nearly 5 months that way in early 2007, said to be caused by full storage tanks at Cushing).

I think you pretty much hit it on the head. It's always a punt. Ain't no tellin. You follow Bloomberg analyst tallies on Thursdays?

Watch the Imarex tanker future rates curve.

There are those who claim the Imarex rates rates in July foretold today. Check Motley Fool. I'll print it if you don't believe me.

If you have a Bloomberg "terminal" you can check Imarex rates daily. Anybody have a Bloomberg terminal and would like to help us out?

Maybe TOD can get a feed.

Largest drop in the records in 15.2 million BBL (January 1, 1999). Other big drops in 1998, 2000, and 2001.

I plan to attend the EIA Conference in April

Don't overlook the big increase in blending components to window dress the gasoline drawdown offset. Looks like the BC's were up about 3 million barrels worth over last week offsetting a big chunk of that gain in "gasoline and blending stocks" noted in the 4 million barrel gain. Blending components are now up 5.4 million barrels over last year.

Can someone tell what "blending components" largely consist of? Does ethanol fall into the category?

According to
2007 fuel ethanol production is averaging 12M barrels/month, steadily increasing into the fall. This should show up somewhere in TWIP, right?

Inventory Net Withdrawals (EIA)

  Dec Jan Feb
U.S. (50 States) 0.85 0.26 0.17


305.2-38.4=266.8 < MOL (about 270?)

Note: -0.06 for Nov (too optimistic).

"Interestingly, the markets aren't reacting much to this drop, or to the news from OPEC suggesting that they won't increase output. The inventory news is offset a bit by the fact that there was a gain at Cushing, but you would think this combination of news would put oil back up over $90. The price briefly popped up above $90, but as I write this, oil has dropped back to $88.72. A month ago, it seemed like every bit of news drove prices higher, but it now looks like we are operating in a different environment."

It appears to me that the markets are focusing on demand, not supply. Hard economic times ahead?

More likely it's the effect of the dollar surge today. Up 79 bp

The an increase in the dollar index offsets higher prices.

A crude estimate from watching for about a year seems to be about 100 bp on the index is worth roughly 3 dpb.

Yes...there is more than one way to prevent crude from reaching $100, isn't there?

The PPT is alive and working hard. The oil traders heed a PPT call to keep oil prices lower temporarily to allow the FED to lower interest rates next week instead of doing their real job and raising rates to fight oil and food inflation. The dollar can and is massaged by the PPT for the same reason on a short term basis. Being 36 hours of oil usage away from the probable MOL should be a wake up call, as should OPEC's refusal to continue to be a lackey to the US. Longer term, I see oil going up and the dollar going down if the FED cuts. OPEC's dollar peg will end and the dollar will fall further if the FED inflates the currency more to save a housing bubble and bond bubble.

raising rates- would crush the economy mercilessly. 10 Million people would be homeless. It would cause a revolution. Million die, fascist dictator comes to power.


lower rates-Hyperinflation can be blamed on China. Country goes to a war footing, United States survives.

We might even pass the 50 day moving average:

No the stock market was up today. Wait till the stock market is going down and we have some bad news then the herd will probably pile back on oil. I think the pig men are making some serious dough sloshing money back and forth between the two markets. They have been acting opposite each other for a while now at least to me.

I'm not sure if TWIP is the right place for this post, but here it goes.

Bernstein Research just released a report by a guy named Neil McMahon on Ghawar that compared satellite images from 2004 & 2007 in order to form a picture of the recent drilling activity on Ghawar.

Some quotes:

"... much of the increased drilling activity on the Ghawar field can be explained by two major Aramco projects." (Haradh-III and Hawiyah NGL recovery)

"... the mature areas in the north of the Ghawar field, Shedgum and 'Uthmaniyah, have undergone intensive drilling as well, likely indicating Enhanced Oil Recovery (EOR) techniques being employed to slow decline rates."

The author is clearly not in the PO camp, but does state, "... this is not to say that this data agrees entirely with the forecasts of Saudi Aramco either, as it is clear that mature areas of Ghawar are now requiring special attention"

The author also notes that "... recent tanker rate data which would indeed suggest that Saudi has started again to
increase production?"

Here's more,

"Although our mapping of the changes in oil field infrastructure and drilling locations over the last three
years from space suggests that widespread drilling across the traditional reservoirs of the field is not
occurring today, there are mature areas which are witnessing intensive EOR activities based on our
interpretation. This suggests that whilst the field is not as pristine and indestructible as the operator may
indicate, the field is far from the state that the Cantarell field finds itself in today. "

I am not a geologist and am in no position to critique the report. I got it via a research site that requires a hefty paid subscription. Otherwise, I'd post a link to the pdf file. That said, it is very possible that the report is available free somewhere on the web.

field is far from the state that the Cantarell field finds itself in today

Talk about damning with faint praise!

When Ghawar is in the same state as Cantarell, the whole world will know it; no satellite pictures needed.


Ghawar doesn't need to come close to being even half as bad as Cantarell for major problems to develop. I mean major. China filling its SPR will keep demand high, as will U.S filling of the SPR. As demand declines, inventories will rise, and eventually traders will realize that demand for oil, even in poor economic conditions won't fall near as much as anticipated- in fact I expect it to grow during economic decline.

We will be dealing with many problems all at once- Oil demand high, prices much higher. Economic/Financial problems. Dollar losing value. The trend has stopped for the most part, but if we get a few more days of this uptrend I will be happy. We could make it through 2007 with oil under 100, and the dollar above 75, and not major bank failures, but at the rate we're going I may be in fantasy land. Time will tell.

When I did just this analysis (using Google Earth) it appeared very much as if new sites in N Ghawar were positioned for MRC activities, in narrowly defined regions - not the picture of a reservoir with lots still to give across wide extents. The published data that was found backed that up. There was another here who did a similar analysis and I think came up with similar results.

What also seemed to be missing was evidence of new development to deal with high water cuts. The implication was they either weren't needed or wouldn't work.

As for Cantarell, there was nothing I could see that suggested there wasn't a reduction in available oil - so its not really possible for Neil McMahon to say the two situations are not comparable (unless he has some other evidence to point to). Tanker rates mean little.

Some color -- The oil price forecasts from the people at Sandy Bernstein have been way, way too low all year. (Of course, few forecast the run to a $99 peak.) For them to admit that Ghawar is even beginning to have "issues" is noteworthy IMO.

In the report, they also forecast oil demand growth of just over 1% in the medium term and state that such a demand level would support $70+ oil out to 2012. Given their past oil price forecasts and the fact that I would put them in the anti-PO camp, I find such a price forecast quite "interesting".

In the end, I just want more & better quality data. This report was the first I'd come across in the analyst community that used satellite data and radar interferometry: it doesn't mean they are correct, but I find it nice to see people digging for better data.

You're going to hear this alot:

"peak oil is false"

but then you'll hear stuff about how Oil production is growing by leaps and bounds, just it can't keep up with demand from "China or India". Which is true now. But soon that blow off will mean inevitable declines, sadly at higher rates of oil demand. Once that happens, out right shortages will be blamed on, well the obvious culprits.

If you look at the decreasing rate of growth, and factor that in- We had several % growth a few years ago. Today we will be lucky to have 1%. A year from now, spot shortages and declines of 1-2%. Then, some time in the not so distant future, declines of 5% or more before annually. Bell Curve. Rate of Change. Cool graphs.

The rate of change has been roughly -1.5% annually from the rate we were at in 2003. Looking out, that trend will continue. By then something will give and demand will have to come down, probably in an ugly way. TEOTWAWKI? doubtful. Ugly? yes. Separating the two is up to the observer.

Just to throw a monkey wrench in. We don't have conclusive evidence that the recent slow downs in production are not the result of technical hurdles/issues. From refineries to access to fields to investment. It would be nice if we had a way to show that the Oil industry has been making large investments and not getting the oil. This goes a long way to showing that underground or depletion effects are the core problem.

Hi memmel,

I'm just trying to do a little catching up here - don't know if you'll see this.

re: "technical". Well, there is an argument that says this doesn't matter - right?

In fact, technical hurdles that actually *delay* peak (as opposed to being unsurmountable and compounding "hurdles") - would be a good thing, no?

re: re: "large investments". There isn't away to see this?

If we have rig data from NOCs and shareholder data from "others" -does this work as data? (just asking, I don't know).

Are they following TOD's earlier lead from this year as I recall or is this satellite spying stuff normal BAU in oil analyst business?

satellite data and radar interferometry

Radar interferometry?

Here's a twenty minute interview with McMahon

McMahon says that supply should meet demand for the next few years.

He talks about the aging skilled petroleum work force with an average age of 50.

They are trying to run out of oil and oil workers at the same time.

Being the other TODer besides garyp that was in the Ghawar satellite surveillance business, I am rather curious about several aspects of the report:

  1. Did they do a complete inventory of wells across all of Ghawar?
  2. To get hi-res images for all of Ghawar, particularly for 2007, means they paid DigitalGlobe some money.
  3. Did they do any guessing of where the oil still is, based on where the drilling is?
  4. Did they (under)pay some intern to count the wells?

Some of the limitations of this sort of analysis that I've found are:

  1. Unless the infrastrusture has been stripped, it's impossible to tell if a well is still producing (although perhaps one could with IR), or what its water cut is.
  2. New wells are most likely of MRC type, and the horizontal laterals can deliver oil some distance from where the wellhead is located. One can't see underground, but there is some info on the Saudi's MRC development strategy from their publications
  3. We are still stuck with trying to read the mind of Saudi Aramco -- or reading between the lines of what they say.

Up here in Canada the forecast is for a "normal" winter - something we've not seen in 15 years. We've had warm winters, with temperature swings between warm and seasonable, an unreal January where one could not ski and the only thing I've come to trust is that one can XC ski in January.

Certainly last year was the first time I had to take out my winter bicycle in November and this year pushed that another week earlier. It's been cold and we've had greasy snow road conditions - the snow isn't melting.

It's shaping up to be a cold winter and that is usually blamed for driving up prices ..... but not a word this year about that.

On the plus side I dug the last of my brussel sprouts out of the snow - they taste great with a bit of frost.

Headline on Bloomberg:
"Crude Oil Declines After Report Shows U.S. Fuel Inventories Rose Last Week"

What am I missing here?

You're not in topsy turvy world, where up is down and down is up and imminent troubles in the energy sector is win-win for the markets!

Thanks Admiral - that helps....I think.

well, compared to last year, when oil got pummeled all the way from the time the hurricane season was realized to be a bust to the first week in january when the east coast was 65F or so, the idiocy of this decline is nothing. FWIW, knuckleheaded counter-trend market conditions were recently signaled by mercury entering scorpio (!!).

Hmmm... Next week a big increase? Somehow I don't believe there will be an increase. Even if you accept four million barrels as uncounted -- there still would have been a four million barrel drop in the stocks. Link

But one trader said the big drop was due to storms that closed many ports along the Gulf of Mexico last week.

"There barrels are there, they just weren't counted," said Phil Flynn, senior market analyst at Alaron Trading in Chicago. "Next week we should get a big build."

Is the drop in crude stocks due to the Enbridge pipelines being closed for a time last week?

I'm pretty sure it had an effect. There still would have been a drop in crude stocks, just not as large. Two pipelines were down for several days, which added up to something on the order of 5MB. give or take.

But that oil is still there! Hopefully we get some shipments from Venezuela to make up for it-

The thing was the big draws came from the Gulf and East coasts, which means the upper Midwest is having huge builds if it can be cut off from that pipeline and still not have a draw. This is good, generally.

We are supplied for winter with Gasoline- but with heating Oil? thats the biggy. the MSM is pushing a Saudi ramp up- but thats unofficial, just gossip. The rate cut will boost prices, and reports of a cold winter could boost them more.