Market Missing The Big Picture On Oil

“Davidson” submits:

US Oil Production at 11.9mil BBL/Day is a record high, but so are crude exports while imports are declining. The market focus on single metrics misses the global expansion which drives global energy demand. The US Oil situation chart shows Total Crude Inputs to the US oil processing system has climbed to record levels. The US has ramped its refining capacity to meet global refined product demand which has a 13% annual increase since 2006. Changes in regulations permitted crude exports to rise to record levels, now ~3mil BBL/Day.

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Weekly reports are volatile with Spring and Fall shutdowns for maintenance and seasonal EPA fuel blend regulations. This results in high levels of seasonal volatility in US Crude Inv and US Gasoline Inv. It is shifting in these reported levels which often drive oil prices as much 3%-5% due to short-term investors. Scheduling shifts in 3 or 4 supertankers carrying more than 1mil-2mil  BBL each can cause unexpected inventory adjustments at any time. Traders react with as little as 1mil difference from expectations. Note: 5mil BBL shift in US Crude Inventories when levels are 435mil BBL represents slightly over 1% are well within the error of measurement for these reports and single reports provide little meaningful information regarding the inventory trend. Gasoline inventories of 250mil BBL likewise make single small weekly shifts meaningless. Nonetheless, traders must be traders and the media exaggerates the importance of these reports which drives advertising revenue. 

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The Big Picture is the US continues to consume less and less energy to achieve internal growth. The net/net is that the US is raising its Refined Product production to meet global demand. Seasonality and economic variability create short-term volatility on which many focus and lead them to miss this larger trend. The US Export of Refined Products is growing ~13% annually while global crude demand is growing ~1.75%. Many developing nations do not have oil reserves and must import refined products and some of those that do, import refined products because they have not yet justified their own domestic refining capacity. Venezuela is one of those who export to US refiners for the importation of refined products. 

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Disclosure: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or ...

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