I think Katrina and Rita got some folks attention

Just over a week ago I posted the changing picture of the American gasoline stocks.  Here is the latest version thereof, and the picture has changed in direction.

If one  further looks at the numbers that the EIA site provides. There is a slight discrepancy between the tabulated data and that plotted, and it took me a minute to realize that the curves are showing the rolling four-week averaged data, rather than the actual weekly for the imported gasoline data (and presumably also for the rest).  This is of significance since such an average, in this case with the changing situation, initially masks the fact that the imports for the past three weeks have gone from 0.938 to 1.207 to 1.423 mbd.  One may assume (at least I am) that about 500,000 bd of this is coming from the 20 mbd of gasoline that was put up by the IEA partners in response to our request following Katrina.  If this is the level of support that can be anticipated, then it will last some 40 odd days before that source is gone.  

Taken from the same site, the total US demand for gasoline has fallen  by about 70,000 bd below the level it was at this time last year, whereas during the summer it was about 100,000 bd ahead.  <center></center>

  (I compared numbers from the tables for the last week, and averages from the graph for the summer, since those numbers were consistent for a period.)

Since current production has dropped about 1 mbd , it appears that there will be an inevitable drawdown in our current stocks until the refineries come back on line.  At that time some of the tankers that are now acting as a partial storage facility, since they cannot immediately unload the oil they have brought to the Gulf, will be able to return to normal commerce.  The MMS report

Today's shut-in oil production is 1,299,928 BOPD.  This shut-in oil production is equivalent to 86.66% of the daily oil production in the GOM, which is currently approximately 1.5 million BOPD.

Today's shut-in gas production is 6.895 BCFPD.  This shut-in gas production is equivalent to 68.95% of the daily gas production in the GOM, which is currently approximately 10 BCFPD.

The cumulative shut-in oil production for the period 8/26/05-10/5/05 is 47,756,987 bbls, which is equivalent to 8.723 % of the yearly production of oil in the GOM (approximately 547.5 million barrels).

The cumulative shut-in gas production 8/26/05-10/5/05 is 233.446 BCF, which is equivalent to 6.396 % of the yearly production of gas in the GOM (approximately 3.65 TCF).

And I almost missed this note from Rigzone which points out that the Saudi Arabian oil minister has commented that

The report, entitled "Saudi Arabia's Upstream and Downstream Expansion Plans for the Next Decade," says the net increase in crude oil production capacity of 1.5 million b/d to 12.5 million b/d by 2009 will be accompanied by similar increases in Saudi-owned refining capacity aimed at processing heavy crudes.

State-owned Saudi Arabian Oil Co. (SOI.YY) and its international refinery partners are planning from 2009 to have an extra 2.02 million b/d of capacity specifically tailored for processing heavy crude into high-demand products such as gasoline and diesel.

The leading member of the Organization of Petroleum Exporting Countries, currently producing 9.6 millionb/d, today has spare capacity of 1.5 million b/d in heavy crude, largely from the offshore Safaniya field, but refineries tend to shun the grade as it is harder to convert into high-demand products such as gasoline.

 I think that this may be saying that they are planning to increase production from Safaniya more than they had in the past, (which will require the offshore rigs that they are borrowing - although some of those were supposed to be developing deep water gas fields). It also appears that they are going to bite the bullet and put in a refinery to refine the Manifa oil.
Aramco, the report says, may from 2009 develop the Manifa oil field, providing an extra 1 million b/d of heavy crude production, if extra refinery capacity is in place by then. Two other projects could add another 600,000 b/d of heavy crude, the report says.
 That is some good news, particularly with the increases in refining capacity that they are going to put in place, even though it may take a year or three before they are in place.

And to prove that this is a more than exceptionally interesting time you might also want to note the Rigzone articles that show Alaska getting tough about getting more oil from the North Slope, while Florida's Bush changes his mind about GOMEX drilling.

It might appear, to a casual observer, as though something has caught state government's attention.

Interesting stuff indeed!

Does this apparent demand destruction account for the recent drop in crude and gasoline prices?

My guess is that the reduced demand is only a tiny part of the price drop, and that it's mostly due to traders perceiving that the damage to the Gulf energy infrastructure will be repaired quickly enough not to cause shortages.

I'm not convinced that we know enough yet to say that the production capacity will or won't be back that quickly, but it seems that the traders are betting heavily on the "will" scenario.

Re: "betting heavily on the [capacity] will scenario"

To anyone who believes this, I've got some excellent (swamp)land in Florida I can sell you cheap...

I have never seen one iota of evidence on TOD that oil traders have any idea at all about realistic oil supply and demand issues and are able to see past the end of their noses... myopic would seem to be the word I'm looking for, meaning "lack of discernment or long-range perspective in thinking or planning". Generally speaking, those few that make money seem to be slightly anticipating the herd. And then, once and a while, the s*** hits the fan and they all say "whoops", times have changed. Then they go on playing the same shortsighted game.

One thing that we can be absolutely sure of is this: peak oil will never get solved through the markets. Any new energy sources would have to be heavily subsidized and there is no such thing as a trader's energy market "correction" until it's too late....
The only news, aside from this site, that I hear about crude prices is the 30-day future.  My question: does anybody actually pay this?  It doesn't seem to make sense to buy a 30 day future (assuming you really want to buy the commodity and aren't simply speculating) if you think the price will be higher, so futures would seem to have a built in lowball tendency; how well does the spot market track with the future price of thirty days before?
The fact is that "futures" prices have almost nothing to do with expectations of future prices.  They are almost entirely determined by interest rates.

Imagine you're a wealthy institution (or individual) with some cash you want to invest.  You could put it into 3-month treasury bills and make 3.5% (annual rate).  Or, you could buy oil on the spot market and (at the same moment) sell a future contract for the same oil 3 months out.  If the three-month future oil price is enough higher than the current price to cover the transaction and storage costs and still return more than the 3.5% annual rate of return, then obviously you want to buy the spot oil and sell the oil future.

Observe that it makes no difference what the price of oil actually is three months from now.  You've locked in your rate of return right at the start.

In practice there are some extra costs and risks.  For example, a hurricane might make it impossible for you to actually deliver the oil you've got sitting in your storage tank.  Then your tank is tied up longer than the 3 months you'd planned (raising your costs) and you're in danger of defaulting on your delivery (if the market doesn't declare force majeure and say you can deliver later).  But that just means that threshold where you make the trade is higher than 3.5%.

You can make the same trade the other direction--you have oil now and you need oil in 3 months.  You can just store your oil for three months, or you can sell it now and invest the cash in treasury bills, while simultaneously buying a futures contract for oil for delivery in three months.  As long as the future price is not so much more than current price that the interest on the treasury bill can't make up the difference, then the trade makes sense.  If you would otherwise have to pay for storage, that's another plus to the trade.

The actual future price of oil has almost nothing to do with it.  It's all a matter of interest rates.

So then, the real number we should be concentrating on  is the spot price, no?
I think the main reason that people track futures is that the market is very liquid compared to the spot market, so it shows up price changes very quickly.

And there is some information in the futures prices.  When they DO move out of line with what you'd expect based on interest rates, it means something significant is happening in the physical markets, such as a risk of physical shortages severe enough that contracts for delivery can't be met.

I am not so sure that they are betting.  The front end future contract is likely to be swamped by excess oil with Nato sending aid and Bush opening the reserves.  I expect they may even drop below $60 for a time.  I think that there is a great pressure to hold off crisis until after the Christmas holidays if possible.  ASPO just moved peak oil out 3 years to 2010 based on deepwater extraction numbers, but I think the two hurricanes may have a greater effect and as yet an unknown effect.  So much money is being promised for wars and reconstruction both at home and abroad, the IOB this march 2006 is likely to be the focal of most of our foreign policy in the coming months.
Of course they're betting--unless they have 100% reliable crystal balls.  (The creepy thing is that many of them do think they have a lock on Knowing The Future, but that's a topic for another time.)

I think you're right on the mark about short-term price moves.  We're seeing an energy market that's warped beyond description by manipulation (the SPR/IEA flows, political pressure, as you mentioned) and exogenous events (hurricanes, wars).  We shouldn't be surprised if the market is even less adept than normal at reflecting the underlying reality of supply and demand in the short run.

Oil in the low $50's for a while seems very likely, although I'm less sure about the outlook for gasoline prices.  That's a critical detail, since stable, "high" gasoline prices will do more to promote conservaton and start the long process of reshaping mainstream attitudes and behavior than anything else could, particularly in the US.

Those oil PLATFORMS that were lost each contained from 10 to 50 wells each. They are lost forever, and thus will not be brought back into production. The remediation cost will far outweigh any production remaining. Diving companies will literally make millions in profits just from surveying and removing the toppled platforms. Remember, PLATFORMS are structures that contain producing wells and RIGS are MODU's (mobile offshore drilling units). Losing a rig affects future exploration costs and plans. Losing a oplatform means permanent loss of production.
"They are lost forever"?  "Losing a oplatform means permanent loss of production."?  Really?  Even once oil is $200 or $300 or more per barrel?  We'll literally NEVER go back to those locations for the oil we know is there?

I can't prove we'll go back, but saying we'll never do it seems like a pretty tough assertion to defend.

Lost forever might be an overstatement, but consider this: A. Drilling equipment is very scarce
B. Most of these wells were only producing relatively small amounts

It will take a long time to make re-drilling these wells profitable. So until A gets resolved through more rig production or B that small amount becomes important, they are a straight up loss to us for the foreseeable future.

Geologically, I'm not sure what happens when you disrupt a well like that. Does it eventually lose pressure?

J (long time TOD oil insider) wishes to respond:

Fact: the environmental and disposal costs will heavily impact bottom line numbers. If the fields had been new, then a possibility might exist that the platforms could turn around their economics. But in an aged and depleting field, you cut your losses when you have total structural wipeout because your economics are completely different.

After a platform is toppled, you have to stop any pollution, provide remediation (with the EPA and Louisiana DEQ, this in itself could be more than the cost of a platform), cut off all wells at the mudline and re-enter them to plug them back, then remove the scrapped platform itself. If you have 20-30 wells, this is 20-30 million dollars at a minimum, just to plug the wells! Most of these platforms were only economical because they had been built in a cheaper era and paid out by the primary production before being purchased by a new owner at an adjusted (much reduced) price.

Even at $200 bbl oil, the economics do not work out because of the limited amount of oil left and the new, higher cost of extraction and facilities. Combine the additional plugging and environmental costs, and you have a nice loss to carry forward though...

Let me ask a different question about oil futures -  How has the futures market done making long term predictions of price?

Very poorly is the answer.  Even in mid 2004, oil contracts for delivery one year or more were actually less than the price then - which was about $35.

It appears that oil traders just project short term trends into the future.  

Alan Greenspan states that long term futures contracts show that our inflation expectations are low.  He's wrong, it just shows futures traders, and Wall Street in general, can't think much beyond the immeadiate future - let alone understand the long term impact of PO.  

It appears that information about future supply problems gets almost immediately incorporated into the spot price (this is why the futures price has no additional information about the future over the spot price). If this did not happen, it would be possible to profit from the difference as pbrewer outlined above.
I finally saw the map that made me appreciate the potential damage done by the hurricanes. From MMS, the path of the 2 hurricanes in relation to all the GOMEX rigs and platforms.

One can guess from the graphs that gas will get pricier over the coming months, even if we are in an irrational price decline at the moment. CNN has some discussion of how consumers are responding so far - carpooling, moving closer to work, doing without fresh fruits, trimming purchases, etc

So, the Saudis are going to take their heavy sour crude and refine it themselves because we can't... and then ship the refined product. Finally, from the Saudis, a strategy that actually makes sense.... instead of telling us that they've got plenty of oil to ship that we can't use.

Meanwhile, 40 odd days before that [IEA/SPR reserve] source is gone... and we're maybe up the creek without a paddle as far as I can see, despite lower demand. We'll see just how elastic demand truly is, won't we?
Demand growth has stopped, but for how long is the question... perhaps long enough to get us through this mini-crisis, until the next at least.

Perhaps more important than "how long" will demand growth remain in a down trend is "how long" before that down trend slows down - in the short term there must be fairly inelastic limits to how much demand can be chopped off - eventually the dip will bottom out; perhaps its already on the cusp:

Total product usage
19-Aug    21320   
26-Aug    21505    185
2 -Sep    21329    -176
9 -Sep    20979    -350
16-Sep    20699    -280
23-Sep    20219    -480
30-Sep    19940    -279

The largest dip has been in gasoline; distillate and jet fuel have remained relatively constant -- in fact jet fuel usage was up last week over the week prior.

So, once Martha and the Muffins stop drivin to the corner store to buy lottery tix, where else will cuts come from to keep the trend going...

One of the reasons I wanted to put the demand curve up was that, as you can see,  while last year it also dipped at this time, it then picked back up again, and it will be interesting to see if we follow that trend again this year.
HO, your graphic shows we are at the bottom of the average gasoline stocks range for this time of year and we've got the obvious shut-ins from the GOM. Follow the trend toward greater usage from last year again this year? If that does happen, after the 40 days period you mention, it seems that prices must surge upwards... Or else we are totally baffled about what is going on.
I should add that since supply is artificially high right now due to infusions from the SPR/IEA, Americans may behave as though nothing has happened and follow last year's trend. They have been warned, however -- even our government has told them to conserve. So the question may come down to this: will decreased demand (if it happens) compensate for shortfall in refinable product? Or, if the refineries get more or less up to speed, will oil imports make up for lost GOM production in any case? If so, then in a world where supply and demand are very tight, somebody else is falling short.
well, the initial surge of gasoline imports reflect more than just european reserves.  Ships at sea diverted likely diverted to US markets immediately because of the arbitrage opportunities price spike in the US created.  There is growing gasoline surplus in europe that could be diverted to US without need to tap any of the gasoline in strategic reserves there.  not 500kbd worth of surplus gas but enough to probably offset a fair amount of refinery shut in here. Shipping it here is another matter altogether.  but if I were to guess, I will bet that in the end the final gasoline release from european strategic reserves this round will not be 20mb if that is what they really promised.

and again, if you look at that spike up and then down in gasoline stocks in recent weeks.. that should give you some clue that you should not overinterpret last few weeks of gasoline demand. still too much transient inventory restocking to infer a long term impact/trend.

With french refineries on strike total (no pun intended) gasoline coming here may be less than anticipated. One surprising thing in this report was the fact that crude did not build. It seems mexico just shipped a lot of their product elsewhere. At current rates we should draw another 15 million of products next week with perhaps a slight build in crude.
Just out of curiosity, when Matt Simmons talks about Saudi Arabia going into depletion, he IS talking about sour as well as sweet crude, isn't he?
This is a little off topic but related to the MMS report you showed, HO. Ten days after Rita natural gas is still nearly 70% shut in. We've left about 0.2 TCF (trillion cubic feet) in the ground so far. If full recovery takes a long time (a year?), and we average, say, 40-50% shut-in natural gas production through March '06, that puts us down about 1 TCF for the whole winter. For the past two years, the US has used 11.8 TCF during the months October through March.

So, we have to get through this winter with 8% less natural gas than we've been using. If we don't have a warm winter, there may be serious loss of life due to shortages.

I'm curious to see if anybody's noticed the price of diesel going through the roof lately?? I'm paying over $3.00/gal in the midwest with prices as high as $3.19.. Does anyone have any information on diesel for me??

I see the same thing here - about a week and a half ago, I could get D2 for about $2.95.  Now it is $3.29.  This is at a local station that isn't exactly known for having the lowest prices, but I drive past it.  

I can get B100 for about $3.39.  I guess that's good news.

It might be because they are starting to develop stocks of home heating oil.

Diesel is going up in PacNW as well, $3.09 at the local station, was $2.99 last week

This site shows the increase in prices from last week and last year.  No explanation that I saw.


BTW: Why does B100 go up in lock step with regular diesel? Is this increased demand overwhelming a limited supply or is vegetable oil/grease increasing in price as well?

A further follow-up on diesel is provided via Treehugger (too bad they don't link to the original NYT article).


So there's an indication from treehunger that supplies of diesel must be low but nobody's talking?? I'm sure long haul truckers have had about as much as they can take at these prices..  

I'll keep looking..

Here in western Colorado, it jumped from $2.99 to $3.39 this morning at one station.
Pretty soon we should hear something about Chinese demand. This was down because fixed product prices were too low to allow refineries to make a profit, so they exported product. I think prices are now climbing, so consumption may be climbing too - lots of wanna be drivers have had to keep their new cars in the garage, no doubt anxious to do a little touring. Still to some extent a market economy, still see odd things happening.
Just some food for thought:

I recently saw this on an msn group site:

What happens when you drain a running engine of its  lubricants? It creates more friction, overheats and eventually seizes up. One major difference from the age of the dinosaur hot house is that they became the cooling down the mantle of the earth allowing the ice caps to freeze... and water levels recede. There are two ice caps, north and south.

Could it be that the pure fact of removing oil from the ground over the past 150 years  would upset the balance of the planet cooling itself?  Combined with usage of oil, i.e. industrial age? I never really thought about it till now, but it kind of makes sense!
Or is he full of it?

The original text can be found here:
 http://moneycentral.groups.msn.com/SquawkBox/general.msnw?action=get_message&mview=0&ID_Mess age=55669&LastModified=4675541876776355157

I call "full of it".  Our wells don't go down to the crust/mantle boundary.  The oil is in the crust, not under it.  The oil doesn't lubricate anything and doesn't even contact the mantle.  On top of that, the amount of oil in comparison to the amount of crust (much less mantle!) is insignificant.

There are sooo many things wrong with his train of thought that I don't even know where to begin...

Now, along a different line of thought, the transformation of ancient materials into oil beneath ground IS a form of carbon sequestration, so the formation of oil represents the removal of CO2 from the atmosphere.  I suppose that could cause some global cooling.  Burning the oil reverses that process.  

Something not mentioned too much, still related to PO....

I'm a grad student in the life sciences and work in a biomedical research lab.  We use an INORDINATE amount of plastic a month, from pipette tips, to petri dishes to culture cells and bacteria, to small and large tubes, you get the picture.  As such, I'm a little more than just concerned about all the major polymer feedstock suppliers declaring force majeure in the past couple of weeks.  I'm sure at the least, we're in for higher plastics prices, but might we be looking at a plastics shortage?  Or can foreign producers pick up the slack?

Does anyone know how off-kilter the proportions of refined products are right now?  Is whatever refining capacity we have right now going full-bore gasoline and jet fuel, at the expense of lubricants and other petro-products?

Any insights would be helpful.

Refining crude is simply seperation of various molecules according to size. The shortest molecules are sold as LPG or propane. Next in size is gasoline, then kerosene, then diesel, then naphtha, then lubricants, then bunker fuel, and finally solid asphalt. These products can be catalyticly   converted into other fuels to a limited extent. Jet fuels are combination of kerosene, gasoline, and lubricants. Petrochemicals are a relatively small percentage of all oil consumed. Europe uses diesel more than the US and as a result has a surplus of gasoline which is sold to us.

It is ENTIRELY related to Peak Oil, so very relevant.

I think this is actually the first time this has happened historically.


That guy is nuts.
The mass of all the oil on the planet is mathematically inconsequential when compared to the mantle mass.
The most prolific oil deposits are much more recent geologically, than the dinosaurs...

thank you Spooky!

Geez, i was wondering about that! Thanks for clearing it up!


Check out today's NY Times article On Wall and Main, Worries About Oil. The article goes on and on about how rising prices are killing the airlines, the truckers, etc. On Wall Street, prices fell for the third day in a row on fears that higher fuel prices are hurting the economy. And right there, in the middle the article, standing apart from everything, is this:
As concerns mounted that high fuel prices would slow growth, traders on the New York Mercantile Exchange pushed down the price of oil and gasoline futures on the expectation that oil demand would ease soon.

Light crude oil for November delivery closed at $62.79 a barrel, down 1.7 percent. Gasoline futures dropped for a fifth session, to $1.91 a gallon, down more than 5 percent.
Now, my understanding is that if you're looking for demand to ease, you've got to raise prices.

Is there an economist in the room?
I think what is meant in the article is that, since traders expect demand to fall, they are anticipating a fall in prices and therefore selling oil futures short.  So, if prices are now $63 and I expect demand to fall, I will be willing to sell my oil for $62 now because I expect it to fall even lower in the future.  

It's just the opposite of what has happened over the past couple of years; the expectation of rising demand caused traders to push the price up from $30 to $65.

Thanks for your take on things, RayJ.

So my question now: Why do they expect demand to fall if they keep lowering the price?
They do not expect demand to fall indefinitely but expect demand to pick up again at some lower unknown price.  So they will keep lowering the price until they see signs of demand picking up again. At the point when traders start expecting that demand will rise, they will start raising the price.  

Of course the above is a very simplistic explanation that ignores all the other news and events on the supply side that interact with demand to set the market price.

My speculation is roughly this: traders have been bidding the price up and up to figure out what it would take to cause the driving (and heating) public to blanche and cut consumption. They more-or-less have found that level - the public is now blanching. Now the traders are worried they've overdone it (since there are so many delays in the system) and that prices need to fall as more demand is now in the process of being destroyed than strictly necessary in the short term.
I get busy for a day and miss all the interesting posts!

Thanks to all TOD posters who bring DATA sets to the discussion.  You guys know where to look for the pertinent numbers.

Thanks also to the people dissecting the trading trends.  I have been questioning since Rita hit why futures prices have not been on up trends.  I think much of this has been covered in above posts now but I have to add my own extrapolation from recent events.

  1. I believe we have seen some demand destruction in transportation fuels because of the price spikes.  Mostly this is car pools and not driving near the GOM.  I  don't see where there has been any reduction in natural gas usage.

  2. This has instantly reduced demand some measurable amount.

  3. At the same time that 1 & 2 above happened the government opened all the available storage capacity.  This includes gasoline & diesel from europe and elsewhere, crude from SPR, Europe and the Middle east, and all available NG supply.

  4. The release of this stored supply has been greater than the instantaneous demand destruction in transportation.  And has merely kept up with NG needs.

  5. This short term liquidation of stocks is masking the true nature of the supply reduction.  Traders, in an open market, see a surplus in supply therefore the price goes down.  They have very little or no knowledge of how the supply is being maintained, only that is sufficient or greater than instantaneous demand.

  6. The prices of oil, gas, diesel, NG are not reflecting what future supply will be like when we have liquidated a great amount of stored supply and can't replace it.

  7. At that point refined stocks will not meet demand and the price will 'correct' upwards.  Demand will want to exceed supply.

  8. Assuming that a lot (but not all)of the refining capacity can get back up in a few months there is liable to be insufficient raw stocks, crude and NG, to run through the refineries at their brought back online capacity.

  9. At that point there will be shortage of refined stocks for two reasons.  The reconstituted refining capacity will be less than before Katrina and Rita.  And the crude & NG from the gulf will be much lower than before Katrina & Rita and won't meet even the reduced refining capacity.

  10. That is the point where we will have to have severe demand destruction, down and equal to our sustainable supply.  Will this mean the markets will go to the roof on prices?  Not if demand destruction balances supply.

As an engineering friend would advise me, when he couldn't predict what the outcome would be from exceeding the capacity or specs of equipment, "Bad things will happen".  Well if we get to Number 10 above BAD THINGS WILL HAPPEN.  I am not in a position to say what the bad things will  be but it sure looks like we are setting ourselves up for severe shortage solely by not accepting reality of damage to the infrastructure.
One thing I haven't seen explicitly mentioned about all of the pricing/demand destruction stuff with respect to crude is that the SPR went from being customer (filling) to supplier (releasing) after Katrina.

Now I don't know whether gov't SPR demand shows up in EIA reports or not, but if it does, it could explain a portion of crude demand destruction.  Whether it does or not, when you look at the current pricing pressures, you should keep in mind that the SPR influence on price is not only from what they're releasing, it's from the release amount plus the amount they're no longer demanding.

Another point:

If opening the SPR temporarily eases the price on crude, the Chinese may decide this is a good time to start filling their new SPR.

Yes, I know that I am dumb, but please humor me.

I have been looking at the "This Week in Petroleum" report since Wednesday and have been listening to the talking heads and read all the above comments in this thread.

NEVERTHELESS, I see something different in the demand numbers.  If one looks at the weekly demand numbers, ignoring the 4 week average that appears to be skewed (perhaps the outlier will drop off next report), the gasoline demand for the past three weeks has been INCREASING.  This does not represent demand destruction to me!  And for the most recent week, the demand is approaching the demand last year at the corresponding period.  So if weekly demand NOW is about the same as weekly demand LAST YEAR, where is the reduction in demand (other than the outlier week or weeks)?

Note that the chart uses the average number as pointed out in the thread's lead message and it is a 4 week average with the 4 week ago demand figure not shown

Considering that gasoline at the pump is about 40 percent more this year than last, why is there not a real reduction in demand?

Can someone please explain it to me in simple terms that even I can understand?


One weeks data from the EIA is not accurate enough there is simply to much noise in it. The 4 week average is the real number. BUT the last 4 weeks have been unusual so the 4 week average dosent realy work in this case.

Am i helping?????:)

The market is pricing in huge demand destruction IMO and i am not sure its warrented yet but the market always over reacts.

The differential between the spot prices and futures is way to big. One is wrong.

I think the first blast of winter will quickly change this market.


I tend to ignore the pricing aspect since I personally believe that the price of oil futures are being manipulated to further the administrations goals.

I also agree that one weeks figures may be very noisy.

Nevertheless, the past three weeks shows increasing demand numbers.  And the current week's demand is ABOUT equal to last years demand despite the 40 percent higher price.

So, by the Government's numbers, there is no substantial EVIDENCE of any demand destruction the past three weeks or year over year.

Understandable, when the purpose is to make people feel good, the 4 week average is a more attractive number to use.

Dont you feel better knowing everything is now ok:)

Also Distillate demand is up on last year = more oil being used this makes sense as those that can fuel switch from NG will have, creating more demand for distillate.

If demand hasent been damaged we will see the numbers starting to correct over the next couple of weeks.

Another thing about the market comentators those that where right over the last couple of days get the most coverage So you end up with a retrospective not forward looking reports. And the longer they are right the more they get published.

Untill the market swings.

the million dollar question is how far does crude oil need to fall before refineries start to say "boy this is a bargain!" and start a buying frenzy?
Once again I may be wrong, but I through the constraint was not necessarily crude oil supply, but it is the working refinery capacity.

Are the refineries back up to a production level before the huricanes.  If not, then what do they need with crude if they can not refine it into something that they can sell?

If all oil production was sweet light there would be no refinery issue. The reason refinerys have become an issue is because the amount of heavy sour oil is increasing. Harder to refine. With refinery shortages sweet light should get more expensive and heavy sour should get cheaper. Current price differential is about $15.

The difference between spot prices and futures is way to big someone has got it wrong.

can you elaborate the scenarios - 1. what will happen if the spot price is wrong, 2. if the futures price is wrong.  
Many of the refineries in North America have delayed their routine maintenance to help compensate for the shortages in the GOM. Does anyone know when these refineries plan to shut down and do the required maintenance?? Could this conincide with the possible 40 day grace period outlined at the start of this thread??

Does anyone know how long a refinery can go without maintenance before safety guidelines are exceeded??

Just trying to piece this puzzle together.

"2005 - (september 2) Europe-based International Energy Agency agrees to release 2.1 million barrels a day of emergency oil reserves to USA for up to 30 days, including product from the west Eurasian-based 50 million barrel emergency petroleum store. It is planned to release only 369,000 barrels a day as refined of petrol, the remaining 1.73 million barrels a day being unrefined crude oil." http://tinyurl.com/72myz

That was september 2, and an initial reaction. Was this quantum of petroleum sent to USA increased to 500,000 barrels a day, as Stuart suggests? (I don't know - anybody...?)

When comparing periods, don't forget that this time last year the amount of petroleum available had been already reduced due to september 2004's hurricane Ivan, increasing price/reducing demand i.e. dropping inventories by ~13 million barrels over normalfor the period. Comparing this years use against last is comparing a significantly reduced use against a reduced use. Is this level of use 'atypical'? Perhaps not. Perhaps reduced consumption is the new 'normal'.

The other question is the effect of gasoline scarcity-pricing (short and long term).

At the same time as USA enters the European market to bid for petroleum, French refinery production experiences a strike-related hiccup. This may tip the balance of the product mix at French refineries (at least) to more diesel and less petroleum, as a large part of the French fleet of cars runs on highly fuel-cost efficient diesel motors. Other countries - Iran for instance - which have grossly insufficient refineries for self-sufficient petroleum supply are also bidding to meet an increased demand, but subsidise the pump price, killing any pricing pressure on consumers. In un-subsidised (and 'bizarro' subsidised!)countries, this demand has to be balanced against resistance due to price. In UK, for example, petroleum is the equivalent of US$6.92 per US gallon. But these high levels are relatively 'normal' for UK motorists. Will USA and others bidding for gasoline drive demand down further in Europe? I doubt it. Will higher petroleum prices drive demand down further in USA? For low income, yes, obviously. For middle income...unknown territory. On the European scale, at $US3 a gallon, petroleum is a bargain. Thus the ratio of low and middle income people in USA bears on the degree to which there could be - and might already be - a permanent drop in petroleum demand. Bear in mind low income people drive often gas guzzlers which they cannot sell for more economical models. The demand for older gas guzzlers is low. The capital for financing a trade-in is now there. They are locked-in to the worst possible deal.

Refineries in USA normally start switching production ratios to favor more fuel oil about now (and do some maintainance as they do so). The question I ask is - are they? Or are they hanging onto a long tail of gasoline production beyond the normal switch point? If they are retaining a higher ratio of gasoline production to heating oils, this is equivalent to betting on a warm winter in USA.

Finally, the IEA agreed september 2 to release 370,000 barrels a day of petroleum for 30 days - about 11 million barrels in that period. When did the period start? On the day of announcement or so after? If so, that supply is cut.

But that was Katrina response to a 1 million barrel a day refined petroleum shortfall. Deducting the assumed ~370K barrels a day from Europe, 630K needs to be found on the international market.

But what I am not clear on is the effect of Hurricane Rita on this requirement. Has the limited refinery damage made a substantive negative difference to USA petroleum refinery capacity? Are we looking at 630K, or a higher figure?

posted -
"The capital for financing a trade-in is now there"

should have been -
"The capital for financing a trade-in is NOT there"