This Week in Petroleum 12-12-07

Updated: You would think if last week’s large inventory drop was due to fog-induced delays, all of that crude would show up this week. Not so, as another drop in crude inventories was recorded:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 0.7 million barrels compared to the previous week. At 304.5 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 1.6 million barrels last week, but are near the lower end of the average range. Both finished gasoline inventories and gasoline blending components inventories increased during this period. Distillate fuel inventories decreased by 0.8 million barrels, but are in the lower half of the average range for this time of year.

If gasoline inventories continue to improve, we may yet avoid $4 gasoline in the spring. But I still wouldn’t count on it. More from the report:

U.S. crude oil imports averaged nearly 10.1 million barrels per day last week, up 689,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 9.9 million barrels per day, or 86 thousand barrels per day more than averaged over the same four-week period last year.

Well, on the other hand the sharp rise in crude imports would tend to support the fog story. Refinery utilization fell, which would help keep crude inventories up, but lower gasoline inventories:

U.S. crude oil refinery inputs averaged nearly 15.3 million barrels per day during the week ending December 7, down 172,000 barrels per day from the previous week's average. Refineries operated at 88.8 percent of their operable capacity last week. Gasoline production moved higher compared to the previous week, averaging nearly 9.2 million barrels per day. Distillate fuel production fell last week, averaging 4.2 million barrels per day.


Just as last week’s report was largely overshadowed by the OPEC meeting, this week’s report will come on the heels of the Fed’s announcement on interest rates. (Update: The Fed cut interest rates by a quarter point). Here are the expectations:

U.S. gasoline stockpiles probably rose for a fifth time last week, gaining 1.5 million barrels, based on the median estimate of 10 analysts surveyed by Bloomberg.

Supplies of distillates probably climbed 500,000 barrels, their second gain, while crude oil inventories probably rose 50,000 barrels after dropping 7.9 million barrels a week earlier when the Houston Ship Channel was shut by fog.

Investors will be more focused on the Fed announcement, Excel's Waggoner said. While a quarter-point cut is a “foregone conclusion” there is a chance the bank may lower rates by a half point, which would weaken the dollar and may slow the decline in oil prices, he said.

I think that if the reason for last week’s large decline in crude inventories was due to delayed offloading of shipments because of the fog, we will probably see a larger increase than 50,000 barrels of crude this week.

However, next week's report should be interesting, because on Monday an ice storm shut down the terminal at Cushing, Oklahoma - the delivery point for NYMEX crude:

NEW YORK, Dec 11 (Reuters) - The largest crude oil terminal at the delivery point for NYMEX crude oil futures at Cushing, Oklahoma, and two major pipelines at the hub were still shut Tuesday after an ice storm hit the area Monday, a spokesman for the terminal said.

Enbridge Energy Partners LP's 16.7 million barrel crude oil terminal and the Spearhead and Ozark crude oil pipelines operated by parent company Enbridge Inc were shut Monday, Enbridge spokesman Larry Springer said.

"They went down about 1:00 (Central Time)," said Springer.

Spearhead transports 125,000 barrels per day (bpd) of crude oil from the Chicago area to Cushing. The Ozark line can carry approximately 200,000 bpd from Cushing to Wood River in southern Illinois.

Springer said that the crude oil terminal at the Cushing was also closed due to power outages.

I am all too familiar with the devastation that can be caused by Oklahoma ice storms. I have been through a couple of bad ones. Oil futures are rallying on the news.

Note: As I announced on my blog earlier this week, I will be traveling from December 16th until January 13th with intermittent Internet access. During this time, I hope to put up a post reviewing the year in energy, one on the results of my $1,000 bet (which I think I will win by the skin of my teeth), finalize my ethanol FAQ, and take a look back at the resolutions I made for 2007 (I fell woefully short of my reading goal). I probably won't cover This Week in Petroleum during this time, as I am unlikely to be around a computer when the report comes out.

Good travelling to you Robert.

The Cushing stock build is interesting giving the complexity of the fog, ice, etc.

Life could get interesting if the power isn't restored soon for the terminal and pipelines. Thankfully, gas pipelines are mostly self-powered.

We went through a bad one in NC in 2002 and were without power for a week with the overnight temps in the teens and 20's. Looks like they'll be spared that dose of cold weather immediately following the storm(s).

As a follow-on. I noted that the IPM was released this AM. Nothing really earthshaking although the September values showed a liquids increase of 1.1 million bpd. On the oil side of things (C+C) it was just under 1 million bpd increase.

OPEC accounted for about 55% of the overall increase. Iraq and Mexico were standouts at ~300,000 bpd increase over August, as was Saudi Arabia at 200,000 BPD and Russia at 120,000 BPD.

In comparison, the IEA report in October (for September) only noted an increase of 415 Kbpd. This is a significant difference between the two values and maybe the October values from the EIA won't be nearly as large as we've seen from the IEA. However, the EIA came in at 84.9 (all liquids) for September compared to 85.1 for the IEA and this put the two agencies much closer than they had been in a while.

But who knows? And as I write this oil is now passing through $93.

Robert might be sweating a little, just about now.

And as I write this oil is now passing through $93.

Robert might be sweating a little, just about now.

I swear, EVERY time I say that I think I will win my bet, oil goes up by $3. That's like the 5th time that's happened. The one time I said I thought I would lose it by the end of the week, oil fell by $3.

(Cue the music from JAWS!)

Just when you thought it was safe to ignore the NYMEX comes the $100/barrel fin

Well, the solution is simple:


(Cue bite marks to show only STOP THIN, end of music).

Otherwise, Robert, you might have to shorten your travel by $1000.

I see the NYMEX settlement price was $94.39.

I'm sure the spot market is not far behind.

Hope you appreciate the humor.

It's over $94 now. At the current rate of increase in oil prices--about $1 per hour--we will be over $100 some time tonight.

Seriously, anyone know what is going on?

It could mostly be about helicopters.

Yes, but are they "black helicopters?"

Are "black helicopters" a Federally protected class and if so are you allowed to ask?

ugh - is this what a racist sees as humor?

so I guess the answer to your second question is, "no, unless you want to be seen as a racist"

miss the good ole days there RW?

"ugh - is this what a racist sees as humor?"

I suspect that you may be well qualified to answer you own question.

If you believe that the cause of racial harmony is advanced by Government programs that institutionalize and elevate the importance of race, all I can do is shake my head and hope that logic will ultimately prevail.

I do miss the "good ole days"? ... I certainly don't miss yesteryear's overt institutional racism, ... but today's self righteous political correctness is something I could live without.


"Black Helicopters" are black because helps them to not be seen at night.

"Black Ops" are "Black" because they are secret and shouldn't be "seen". Black is hard to see at night.

Are you seriously stupid or was this an attempt at humour that most of us missed?

``There are a combination of factors moving prices higher,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``Central banks have reached a consensus to spur growth, which should spur demand. The DOE report showed that consumption is strong despite the high prices, this shows there's been no demand destruction.''

Heh, heh, just when I thought the R^2 bet was safe. Also from the above article:

The energy markets have been interconnected with the global capital markets for some time now,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``The renewed outlook for energy demand has us back in rally mode; $100 is squarely back on the table and within reach before year end.

my take on it is this: the market/trader sentiment resumed bullish tone today, after a few weeks of probing the to day trading is affected by market news (or "noise" as some would say), short term counter-trends, technicals indicators like overbought/oversold etc....with oil, the overall supply and demand picture will continue re-assert the upward move---thats why we view pullbacks as opportunities...Patrick Kerr of OGF

Uh... check out the discussion. 25kt remnant low. Looks like a non-factor to me.

I think there is a maximum change per day allowed on the NYMEX, around $5 I believe.

I just checked:

It's $10/barrel (exception on last day of contract before expiration) on the two front month contracts.

There is also allowance to a 200% expansion of the range depending upon when the trading limit is reached (the market is closed for an hour to allow for an orderly transition to the expanded range except when the limit is reached in the last hour of the trading day, and then the market is closed, except on contract expiration day).

The land of the free?

Potentially the land of "lock limit" up / down. However, $10 is one whopper [technical term?] of a daily price movement.

I'm very much a free markets sort, but with margins being what they are, without limits a particularly violent short covering rally [or conversly a liquidation of longs] could mean instant insolvency for half the market and an almost unimaginable cascade of counter party default disasters in OTC derrivatives.

No thanks.

$10/day is nothing. Good thing they've got a little stopper! I feel safer. Don't you?

Ha Ha.

Plan B anyone? Oh, I mean Plan C.

How about this:

Olga's new track directly into GOM?

Let's hope that storm dumps some rain on the southeast U.S.

Today (13 December 2007 17:20 GMT) Tapis is USD 100.50


My confusion on EIA reporting on Blending Components

As some noted last week, Blending Components were up significantly on the report while Finished Gasoline fell and a couple of posters questioned the make-up of blending components. At the time I didn't see a posted answer on what that total meant so today I decided to try and sort it out. It seems that the Blending Components category is just gasoline without ethanol added. Ethanol is counted on another report -- the EIA-819 Monthly Oxygenate Report.

First, two definitions from the EIA website:

Motor gasoline blending: Mechanical mixing of motor gasoline blending components, and oxygenates when required, to produce finished motor gasoline. Finished motor gasoline may be further mixed with other motor gasoline blending components or oxygenates, resulting in increased volumes of finished motor gasoline and/or changes in the formulation of finished motor gasoline (e.g., conventional motor gasoline mixed with MTBE to produce oxygenated motor gasoline).

Motor gasoline blending components: Naphthas (e.g., straight-run gasoline, alkylate, reformate, benzene, toluene, xylene) used for blending or compounding into finished motor gasoline. These components include reformulated gasoline blendstock for oxygenate blending (RBOB) but exclude oxygenates (alcohols, ethers) , butane, and pentanes plus. Note: Oxygenates are reported as individual components and are included in the total for other hydrocarbons, hydrogens, and oxygenates.

Second, a guest post by Matt H20 one year ago:

While gasoline stocks are indeed down, gasoline blending components are way, way up. You put the two together and, allowing for the normal Brownian motion, things look pretty level.

There's a very simple explanation for this. The gasoline that's dropping off the chart is finished gasoline - that is, it's ready to put into your car. What has been increasing is stocks of all the parts you need to make finished gasoline. In the aggregate, you have the same total supply of gasoline - it's just that refiners and distributors are storing them separately.

Why the change? Well, this time two years ago, you could store finished gasoline quite happily. But since then, MTBE was phased out and ethanol brought in, partially as a replacement oxygenate, partially because of the Renewable Fuel Standard.

Ethanol has an affinity to water - if you introduce water into a tank full of E10, all the ethanol is attracted to the water and separates out of the fuel mix, leaving you with a layer of RBOB and a layer of ethanol. It's known as 'phase separation'. Irritatingly, you can't just shake it up again like vinaigrette. So refiners and distributors store the two separately, as RBOB (reformulated gasoline for oxygenate blending - basically, RFG sans EtOH) and ethanol.
If you look back at the chart, you'll notice that the big drop in gasoline stocks and the big uptick in EtOH stocks happened at the beginning of 2006, when the RFS kicked in.

Just a reminder about dealing with problems due to water in E10 fuel.

Mercury Marine Service - Ethanol

Eric Swanson

Does this mean that Stabil and similar products don't work? I use it on an RV and on 2 cycle stuff that isn't going to be used much in the winter. (Yeah, I still have an RV, but I don't drive it much, and try to keep the trips short.)

Thanks for a great clarification. I was certainly one of those misguided souls that thought these were increases in ethanol stocks

I also.

Damn you Robert Rapier. (I wish I knew your middle name)

Stop screwing around with this "job" you have. All this intermittent travel is b*llsh*t! Can't you cease this incredibly selfish behavior? Do us all a favor, won't you? Put down the kid, don't talk to mom, throw away those meddlesome car keys, get a Porta-Potty® and chain yourself next to the computer, the one with reliable internet access.

For God sakes man, don't you understand the value of your assets? What are we, faceless strangers to you!?

Selfish, selfish, selfish.

An excellent post. RR needs to drop RL immediately.

I wish I knew your middle name

You do. It's Robert. :-)

Damn you Mr. Milton Robert Rapier.

Hi Robert I agree with the observations. It's interesting to see a sudden dramtic shift in market sentiment to data this week. There are defintely some very unique investment opportunities right now. We try to digest the incoming data/details and apply to the overall picture in an effort to make as much money for our clients in oil and gas futures (jeez I hope that doesn't sound to crass). It seems to us it's a simple supply//demand scenario. Demand exceeds supply, there are weekly fluctuations, but overall demand has "crossed over". The world produces 85 million barrels a day and uses 88 million a day (give or take a few hundred thousand) --possible slowing demand in the US will continue to be outweighed by emerging asia growth...conservative demand projections are coming over 100 million barrels a day a few years out...existing fields are fields are difficult politically and economically...prices are going up , soon $100 per barrel will be our new reality (with a push to $120-150)---as well as $5.00 at the pump---we simply are unable to replenish what we are using, i continue to view pullbacks as opportunities for investors to get in or add postions at cheaper prices...any readers with questions can contact me if they like--i'm guessing at some point we could be setting up for a spike upward, maybe when the public catches on or some major event---but regardless it looks like we're headed up, pullbacks are great ins---Patrick Kerr of OilGasFutures.Com

I recommend the longstanding thread on this topic at in Robert's absence. Dantespeak and PUP55 have become better than the professionals in the meantime- quite literally(2 year running thread).

Leanan often posts in the thread. I have been readign it most weeks for quite some months now. It is very informative.


The trend from about october 2001 to about september 2004 seems to be a slow 'cranking up' of production. The interrupts are the USA invasion of Iraq, spiking oil sharply up, followed by a fall to the trend.

The drop in production around november 2003 might reflect a combination of USA's Iraqi oil coming onto the market (junish) and being sold into Asian (Saudi) markets plus the Saudi precautionary reserves held to 'tide' over the invasion being sold out of tank farms rather than out of the ground...but I am guessing.

In March 2004 it was increasingly apparent that world oil demand, particularly from China, was much higher than the 'officials' anticipated. Prices rose and rose, and the Saudis pumped to the demand, earning good money at these price points.

Plateau at a 'controlled optimal profit/production' from there.

Natural decline trend by around november 2005 is made much worse by the Saudi increased heavy oil production not having as large a market as world demand would suggest, due to pace of refinery re-working and builds being the bottleneck.

From then to date, better world capacity to deal with heavier and more sulphorous crude marries to new Saudi heavier oil coming on stream, thus back to plateau.

Bounce along, then a relatively precipitous down trend in future.

Someone elses turn now!


Hmmm, so you don't see them getting back to 10.6 mmbpd sustained?

I assume you mean 9.6 (C+C)?

In any case, at Saudi Arabia's current rate of increase in consumption, they need to boost total liquids production by about 2% per year, in order to maintain flat net exports.

I offered to bet Robert that Saudi Arabia would not average 9.6 mbpd or more (C+C) in 2008. He declined.

He offered to bet me that Saudi Arabia would exceed their 2007 production level in 2008. I declined.

From here, the question is whether they will ever again match or exceed the 2005 level of 9.6 mbpd, average annual production. IMO, the answer is no. Time will tell.

well, the Saudis have thrown a huge amount of money at Khurais to get a hoped for 1.2 million barrels a day by 2009.

Munifa is projected to produce 900,000 barrels a day by 2011.

Khursaniyah, bringing in another 500,000 barrels a day is due soon, but given annual decline rate of big fields, cannot be regarded as a safe production expansion capacity.

Safe management of Ghawar might see Saudis with 8 mbpd from 'traditional' fields; Khurais plus Khursaniyah will bring them back to around the 9.5 mbd, plus or minus a few 100 thousand barrels a day.

They might - depending on the decline rate of the most capacious part of Ghawar - 'step through' to Munifa by 2011.

So there is a somewhat supportable case for production at 9 mbd +/- to 2012 or so.

But other factors are at play. Will Saudis pump a little higher every year to satisfy internal demand while sustaining the current level of export earnings? Don't forget, there is a 'lost opportunity cost' for Saudi to continue to sell gasoline domestically at US 19 cents a gallon...

Anyway, things are becoming more complex. As recessionary conditions commence, ability to pay will be a big factor. Both China and Japan are major customers for Saudi oil. Saudi is the biggest source of imported oil for China, for India, for South Korea. Other Asian countries, such as the Phillipines and Pakistan, also buy Saudi oil. Not all would have the same credit rating, in my book, anyway.

Its hard to know what the best production and strategic relationship strategy for Saudi is anymore.

Anyones guess.


... and Saudi net exports were?

Not differentiated in the graph...


They better increase production just to keep up with the domestic demand!

Saudi Arabia last year used more than two million barrels a day, up 6.2% from 2005, at a time when Saudi oil production actually slumped by 2.3%. The whole of the region saw its demand jump 3.5%, while total world demand was growing just 0.7%.


Guzzling! Guzzling!

why that huge increase in the Netherlands? Last time I was in Amsterdam is seemed like everybody was on those ubiquitous bikes...what has changed?

It's got to be a mistake, unless population has fallen dramatically. The EIA shows lower liquids consumption in 2006, versus 2000.

I came across this Dutch anomaly before, almost certainly linked to their large oil import terminal in Rotterdam and associated large petrochemicals industry. So they probably export a lot of finished products - that get beneath our radar.

Could be a Dutch girly car though.

that would make sense, I forget that they are big refiners etc. - so somebody is just counting barrels coming in by the population to get that figure, without subtracting all the exported finished products?

That per capita consumption number for Saudia
Arabia boggles my mind. And the demand is still ramping up? How do they do it? Once everyone's driving an SUV, where do you go from there? Is it private planes? Amazing.

And the average family has something like six or seven kids.

3 or 3.5 of whom don't drive. Saudi oil consumption is largely attributed to the fact that most of their energy consumption is oil-produced versus coal or NG or uranium.

You would think that with the detail Staniford goes into with everything else, he'd be a able to look at this issue for a story if your worries are true.

Tales of air-conditioning outdoor rooms and sensational headline grabbers are largely that. Anecdotal. But don't let that stop you from building a theory.

All the numbers you currently use follow the same pattern as the ones you used before. Interestingly the numbers you used before have all been discredited by actual reported numbers (the ones that end up on the record, the same record you use).

Yes, I know Russian refinery inputs. The ones you are asking about. It would probably help your case if you didn't form opinions and broadcast them before you actually knew the numbers.

Be honest now. I'm curious. Do you just make some stuff up? Because it might turn out to be true.

Serious analysis of everything you have written suggests this. There are probably good reasons why you are James Kunstler's favorite oil analyst.

You want Russian imports. Read IEA reports. They are published every month.

No the 3.5 who don't drive are having someone else drive them to the mall - in between having 6 or 7 kids themselves

As pondlfe noted, the problem is twofold: the direct consumption by each of the six plus kids plus the effect of the six kids having their own kids.

In regard to our work being wrong, feel free to post a detailed analysis. The fact remains that, as I warned in January, 2006, net oil exports worldwide are lower than in 2005, led by the net export decline by the top net exporters, with the New York Times and the WSJ beginning to pay attention to the issue.

Precisely what are you advocating? That Americans buy more SUV's and McMansions at long distances from their jobs?

BTW, anyone else noticed the constant parade of "new" Peak Oil critics including our "new" 9 day friend CG Collins?

You should probably try to respond before you try to tear me apart. It will serve you better. You are in big trouble. Big trouble.

NO, nobody noticed. My response was on the 15th. You whined on the 13th.

Better circle the wagons. I'm gonna make it hurt.

Either you're being self-referential, or wrong about the response which was on the 13th.

Your claims are so risible as to be trollish.  If you don't improve, I expect your presence here to be brief.

Umm, back to camels maybe?

Posted today. No consumption numbers for 3Q yet.

What can be determined from the price differences between pump prices for gasoline and diesel? Living in the Vancouver BC area, prices for diesel in June 07 were consistently 10% lower than gasoline, now they are almost 10% higher.

Thanks in advance

Similar trend in the US. Diesel prices are now more strongly correlated with oil prices than gasoline, particularly for 2007.

When you plot it out (by year), I call 2007 the "diaphragm effect" (after the contraceptive technique) because plotting gasoline price on the y-axis against oil prices on the x-axis gives you what looks like a huge diaphragm preventing prices from climbing into the $4-5/gallon range where previous gas/oil relationships say they should be today (before 2007 and a much better correlation up to the summer of 2004, can you say "Presidential election" for 2004?).

Still there seems to be a cap of diesel prices as well (could have something to do with what happens to the transportation industry, most notable trucks).

IEA to blame for $100 oil spike

"The IEA has a history of over-estimating non-OPEC supply, but this time the predicted increase was the largest since 1984, a time when massive over-supply forced Saudi Arabia to slash output from 10 mb/d to 2.25 mb/d."

I think that a key to understand what is happening in the world can be seen in this movie:

See it and let it see to everyone you care.

As Iran has decided to refuse payment in dollar for oil, there is a great possibility that a new war soon will be declared. After another attack organized from the same peolpe who organized the attack to Twin Towers.
Wake up!

>After another attack organized from the same peolpe who organized the attack to Twin Towers.

The Saudis?

If you see the movie i've suggested, my words will be clear

>If you see the movie i've suggested, my words will be clear

After Sauron captures The Two Towers he'll unleash his orcs on Iran. I saw the movie in the second run theatres. Good popcorn.

The Zeitgeist movie holds that the Two Towers was a false flag operation like The Gulf of Tonkin or the Burning of the Reichstag.

My take is I'm sure Bush and Co. would LOVE to attack Iran, they will face a revolt in the Pentagon if they try. There are enough people there that really honestly care about the soldiers to think that attacking Iran would do anything except turn every single soldier in Iraq into a hostage. It is too easy to shut down the Straights of Hormuz for 6 months to a year with pickup truck mounted Sunburns. So I really don't see how a War with Iran plays out.

My opinion for a while is that the only reason that Bush/Cheney have not attacked Iran is because of active resistance from the Pentagon, with a large portion of the intelligence community now joining in.

In fact, if you really want to get into conspiracy theories, it sure does seem to me that a faction within the intelligence community is out to get Bush & Cheney. The retired CIA officer who is making the rounds of talk shows telling the world that Bush approved water boarding is basically stating, in effect, that Bush is guilty of war crimes. We prosecuted a Japanese officer who used water boarding on an American in the Second World War.

Fortunately, the Supreme Court has decided that "foreigners have no rights", so no risk for GWB.

I hope that you have in the right, but if somebody can organize the Twin Towers' attack, against his own country, he could also do like Sanson in the Bible: not always political choises are rational. Sometimes the fanatics win.

So I just finished watching and it pretty much confirms everything I feel about Peak Oil. PO may hinder the elites ability to take over the world and enslave us all. PO may be a blessing in disguise! Only problem is the elites will do everything in their power to keep the oil flowing in their direction. Ruling the world is very energy-intensive, I assume...