I mentioned a week ago that I had picked up some Whiting on the back of takeout rumors. I sold that position back for a very small gain yesterday. Just as everyone had been focusing on the declining rig count in January and February, now everyone seems focused on the US inventory numbers, which are at a record and moving ever higher. Cushing inventories are around 70% full according to someone on CNBC yesterday. If we really run up against storage limits, there will be no limit to how far the price can fall in the short term.
I had last posted about the US inventories a few weeks ago. I just wanted to reiterate a few points.
1) US inventories are not world inventories. US inventories have very reliable data from EIA, so they are a major data point that everyone focuses on, but the US only uses 20% of the worlds oil production now.
2) It is not clear how much the US build is due to total excess supply of oil and how much is due to the specific glut of light oil from the unconventional plays. This oil cannot be exported except under a few specific circumstances.
3) The refinery turnaround season has also had an effect on the inventory build. Utilization tends to be highest in the summer and low in the winter, so we are coming off a period of low refinery utilization which causes inventory builds.
Now that EIA is predicting declines in Bakken and Eagleford, and refinery utilization rates should be on the upswing, perhaps we will soon see an end to the dramatic inventory builds.
I had last posted about the US inventories a few weeks ago. I just wanted to reiterate a few points.
1) US inventories are not world inventories. US inventories have very reliable data from EIA, so they are a major data point that everyone focuses on, but the US only uses 20% of the worlds oil production now.
2) It is not clear how much the US build is due to total excess supply of oil and how much is due to the specific glut of light oil from the unconventional plays. This oil cannot be exported except under a few specific circumstances.
3) The refinery turnaround season has also had an effect on the inventory build. Utilization tends to be highest in the summer and low in the winter, so we are coming off a period of low refinery utilization which causes inventory builds.
Now that EIA is predicting declines in Bakken and Eagleford, and refinery utilization rates should be on the upswing, perhaps we will soon see an end to the dramatic inventory builds.
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