Tuesday, September 28, 2004

More news from the edge. From today's WSJ (sub. only):
[Oil] Inventories in the U.S. have plunged substantially below last year's level, confounding predictions by many analysts that stocks were building. . . .

Oil inventories typically peak ahead of the Northern Hemisphere winter and are drawn down to meet high demand during the cold season, leaving stocks depleted by February, when the cycle begins again to meet high gasoline demand in the summer months. In recent weeks, however, U.S. inventories have been falling. Last week they fell to 269.5 million barrels, or about 17 days of refinery demand. The industry considers 270 million barrels to be the rough minimum needed to keep the oil-supply chain operating smoothly. . . .

"We've never seen such low inventories and such low [spare production] capacity," says John Cook, director of the petroleum division at the Energy Information Administration of the U.S. Department of Energy. "If I were a trader, I'd be very hawkish, very bullish" on oil prices.
Of course, what the Journal doesn't include in this review is the dramatic growth of inventories in the Strategic Petroleum Reserve. While private crude oil stocks are changed -4.9% from this time last year and fuel oil reserves -1.8%, the SPR has grown 7.8% over the last 12 months. This time last year, private plus public crude oil stocks in the US totaled 904.8 million barrels. Today that figure is 939.4 million barrels, nearly 4% higher.

The story is similar in fuel oil. Private stocks are down 2.3 million barrels from this time last year, but the federal government's Northeast Heating Oil Reserve is at its legal maximum of 2 million barrels. Private plus public reserves thus nearly equal the level of private reserves at this time last year.

What this means, of course, is that sometime in the next five months we are almost surely going to see a significant release of crude and/or fuel oil from US government inventories. If gasoline prices in the US stay below $2/gallon (the national average is now $1.92/gal.) I think it unlikely that we'll see it before the election. Of course, if Dubya gets massacred in the upcoming debates, all bets are off.

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