We seem to be right in line with historicals according to this cite. The cite is an excel file from the department of energy showing U.S. crude inventory levels. Here is a cite where it comes from that also has some other interesting data. We are lower than 2007’s curve and near the midpoint between the 5-year high curve and 5-year low curve.
Just to take a look at this a step further, here is a summary of my look at the current storage levels (data from 8/20/82 through 5/23/08). The average inventory level for the first 21 weeks of 2008 is 308,382 mbbls. This compares to an average for the past 26 years of 325,440 mbbls, for the past 10 years of 309,393 mbbls, and for the past 5 years of 313,633 mbbls. The high was in 1983 at 361,009 mbbls, the low was in 2003 at 277,464 mbbls, and 2008 was the 20th highest out of the 26 years.
Just looking at the 21st week reported for each of the last 26 years yields the following results. The current storage levels are at 311,559 mbbls versus an average of 334,553 mbbls for the past 26 years, 319,718 mbbls for the past 10 years, and 326,405 mbbls for the past 5 years. 2008 is the 22nd highest out of the past 26 years.
I would say that by most measures, we cannot be considered to be anywhere near a high for storage levels by historical standards.
In addition oil demand is dropping. It has been propped up in India and China thanks to subsidies for gas, but that can’t last forever. Clearly a lot of people have bought oil at > $120 / bbl - when the inevitable drop begins, they are going to sell fast, and that should accelerate a slide.
Who knows when it will happen, but it will.
The mentality behind the rising prices may be the same as that with the stock market and housing bubbles, simply put, everyone thinks it will go up, so they invest and buy something where demand outstrips supply (equities or houses) and low and behold the price goes up. (yeah I know gross over simplification)
However if when we see a price correction I don’t think we will see quite the same crash as we did in the tech stocks because the underlying demand for the product will remain strong.
The economies were not entirely dependent on the tech stocks (excepting local wealth generation due to gains made by the stocks) and I would suggest they were more of a storage point for disposable income generated elsewhere in the economy. Once it became apparent it was a speculative bubble, everyone exited, losing some cash in the process and we saw the prices revert to a level which more closely represent the demand for the services that underpinned the specific stocks (which was not a lot). With the housing market I think we are seeing the same thing. Once the housing market as a mechanism for making money has been eliminated, we will see the prices drop to a level which is more representative for the actual demand for people to live in houses against the supply of houses, rather than the demand for houses plus demand for making money off of selling houses against supply.
With oil we, we have a situation where the demand for the actual product is very real, and supply is limited, and due to the demand supply being finely balanced, small interruptions can lead to some pretty serious bidding for that last bbl available today on the spot market. Now I don’t think the supply demand really supports the current price level and the 20 fold increase in investment in all commodities in the last 5 years has clearly had some upward pressure on the price.
What will we see depends on the mechanism that causes the investors to leave the market and put their money somewhere safer. If real global demand takes a big hit due to slowing economies, and the dollar does not crater too much against other currencies then we could see a substantial prices drop as both investors leave and the demand drops
If only US and OECD demand drops, a fair amount the demand could be relatively easily taken up by developing nations, who are not so sensitive to the spot and futures prices, as those countries are generally not buying their oil on the futures market but live in a price insulated world due to local production. Add in a continuing dollar slide against other currencies and the futures market becomes for non OECD investors not so lucrative, but at least still stable. In this case you may not see much price drop at all.
What I suspect may happen, if prices remain high due to continuing speculation, to some extent is that the futures market becomes less relevant as a global price setting mechanism. Whilst the futures markets are for specific blends they also have swaps for other blends at a linked price which accounts for a reasonable amount of liquidity. Producing countries of these swaps may come under pressure from their citizens, neighbors and friendly nations to sell at a price outside the price mechanisms of the futures markets and we see a much wider application of government dictated pricing. I doubt that would happen in the US, but as the liquidity of the futures market drops due to the swaps being less available, we could see an exit of investment from the futures markets as investing in a market with limited liquidity is risky, thus leading to a price drop.
That’s the largest factor that drove oil prices between 2001 and … oh, maybe a year or year-and-a-half ago.
But there’s been over a 25% increase in price-per-gallon at the pump since just mid February 2008. I doubt Chinese-Indian oil use has spiked that much in the past four months.
Not that your wording is incorrect, but I believe that rather than saying “demand is dropping” it would be more correct to say that demand growth is slowing. I think it is correct to say that worldwide consumption is still growing in 2008 versus 2007, it’s just that the growth rate is lower than it had been.
The Latest News from the UK and Around the World | Sky News This article says it should be 60 -70 bucks a barrel. Speculation accounts for nearly half the cost.
Some people are making billions drilling nothing ,providing nothing and never actually owning anything. Just speculating.
One unnamed source at OPEC says that, huh? Great analysis as usual, gonzo. Perhaps you should read the cites given further up on this thread to learn why the “speculators=evil” that you spout isn’t supported by facts. Or maybe a quick read of this article that actually explains what speculators do and why it is a good thing will dispell some of your misconceptions.
I love what that unnamed source also said:
Yeah, I bet they’re “uncomfortable”.
You’re assuming a bubble - that more people are holding onto oil or oil futures than will be able to sell it/them. The problem is, we haven’t established that there’s a basis for that assumption.
. There are a lot of sources saying the same. I could besiege you with them but I do not want to respond to your pettiness. You must read a little more.
http://www.huffingtonp
ost.com/2008/04/20/opec-chief-oil-prices-wou_n_97646.html
OPEC has stated several times. as a matter of fact when Bush went over there and asked for greater production, that it is not about supply.
http://www.foxnews.com/story/0,2933,166038,00.html Even Fox can see it.
Worldwide demand is certainly growing. Absolute consumption in California has been decreasing for about five quarters now. I’ve seen another article saying that consumption is flat or slightly declining in the US as a whole.
To quote
Demand destruction is different from a decline in the increase in demand, I’d say.
If one could prove that a bubble was a bubble during the time of the bubble a lot of people would have saved money after the Internet bubble and the housing bubble. While consumption is increasing, it is not to the point of justifying such a massive increase. There is always some justification for the prices, but you’ll remember that there was justification for high stock and housing prices also.
Yes, you are correct. Just to put some numbers to what you are saying about U.S. demand, here are some stats from the department of energy on US petroleum products consumption.
Through the end of March, we now have had three consecutive months of declining US consumption. The last time consumption was this low was May 2003. When looking at a last twelve month average, the last time it was this low was July 2004. Now, the numbers aren’t significantly down, but this certainly could be the beginning of a trend. I believe that April numbers come out this week (possibly today) so we’ll see if the trend continues.
It is also worth pointing out that the last time the twelve month average for net oil imports was this low was September 2004.
Again, I don’t want to act like there has been some paradigm shift here. The last twelve month average of consumption in the US is only 1.3% down from what it was a year ago.
It is a start though. I invite everyone to look at a somewhat related thread that I started a little while back. Is environmentalism incompatible with low energy costs? - Great Debates - Straight Dope Message Board
There is a little more justification for the increases in oil prices then internet stocks and housing, in my opinion. The fact still remains that the majors and national oil companies are very pessimistic that they can keep up with the projected growth in demand. The fundamentals are there to justify the increases in prices in a way that did not seem to be the case with some of the other historical bubbles. As to why the sharp increase in prices has just occurred, that seems highly related to a movement of funds out of currency and other investments and into commodities (the big, bad speculators).
Demand is down when prices double. That clearly says there is another reason for prices rising. Speculation ids the culprit. There are billions being filtered out of the pockets of the consumer that is just money grabbing. They are supplying no services to earn the profit. They are involved in a money game that the wealthy can play. It should be stopped .
Actually, speculation allows the economy to price future goods, services, and commodities and adjust accordingly. Supplies are being limited because of political issues rather than economic or scientific limits.
IOW, you don’t have a clue how the commodities market actually works…yet you are advocating that it be stopped. For drill (not that I expect a real answer from you), what would you suggest we replace the market with? Historically what has worked better than the current market oriented system? Or, if you want to demonstrate some radical new system that has never been tried before, what would you suggest.
Please…no links. In your own words if you don’t mind.
(waits with bated breath)…
-XT
In addition to what the others said, you are incorrect on your assumptions as well. US demand is down but global demand is still up. Further, you haven’t even factored in supply. Also, all projections project demand to continue to grow in the coming years without supply being able to keep up.
Beyond that, quit acting like there are these evil rich guys out there driving up prices in order to profit on no real work. Who do you think the speculators are? Chances are, most working proffessionals in the US are in some way contributing to this if they have pensions or other investments. When people are worried about US currency devaluation, they might logically move money into gold, or copper, or oil. It’s not something evil; it is a rational response to current conditions.