Time to talk oil glut?
US petroleum inventories have become exceptionally strong over the last couple of weeks, with big increases this week in crude oil and major refined product categories. With crude oil inventories above the average range for the season and the major refined products all at least in the upper half of their average ranges in absolute terms and well above average in days of supply, it's reasonable to talk about a supply glut in the US. Between commercial inventories and the Strategic Petroleum Reserve, there is over 100 days worth of crude oil imports in storage (over 500 days worth of Persian Gulf sourced imports) and substantial domestic production increases coming on line in the next few months even as demand continues to erode.
US Petroleum Supplies and Refining At a Glance
- Total Petroleum Inventories: Up 7.7 million barrels
- Crude Oil Inventories: Up 6.7 million barrels
- Gasoline Inventories: Up 3.3 million barrels
- Distillate Fuels Inventories: Up 1.8 million barrels
- Propane/propylene inventories: Up 500,000 barrels
- Refinery Crude Inputs: 14.5 million barrels/day
- Change: Up 332,000 barrels/day
- Refinery Activity: 84.6%
US Petroleum Demand At a Glance
Compared to Same 4-Week Period Last Year
- Total Products Supplied: Down 2.9%
- Gasoline: Down 2.2%
- Distillate Fuel: Up 0.3%
- Jet Fuel: Down 9%
This Week in Petroleum has the skinny on where that new production is coming from and it should come as no surprise – massive oil company investment produced the improvements:
Spending for investing activities averaged $95 billion per year (in constant 2007 dollars) from 2000 to 2007, up from an average of $51 billion for the previous 8 years (Figure 1), and peaked at $179 billion in 2006. The higher investment spending resulted from higher cash flow from operations, which, in turn, resulted from the significant increases in oil prices that occurred over the past several years.
Petroleum Status Report and This Week in Petroleum: January 7, 2009 [PDF]
Full current report with data tables [PDF]
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#1. Rob Viglione, 1 year and 6 months ago
Thanks goodness for your analysis...I'd been considering entering on the long side of the oil trade sometime soon. Probably not a good idea until we see a reversal in inventories.
Thank you!
#2. Tom Hanna, 1 year and 6 months ago
Thanks, Rob, and sorry I didn't make the update this last week. Had some technical issues with the website and by the time they were solved Friday it was a bit late.
The big thing that has me seeing supply glut right now is the nice little graphs of inventories with the average range overlaid behind the current stocks. When you consider that demand is also down, you can visualize in your head what those would look like if they were redrawn in terms of days of supply instead of barrels. I've also been reading that big traders (banks and brokers) are literally storing oil in tankers to take advantage of a gap between spot and futures prices. Well, that's getting beyond the scope of a comment, so hopefully I'll put something more together in a day or two.
Final note, with OPEC getting even more serious and gas prices low enough that we could see demand pick back up very easily when the economy gets moving, things could turn on a dime - though I still think $140/barrel was a bubble that has thoroughly burst.
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