Thomas
DeChastelain
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This Week in Petroleum
posted Aug 30, 2005 at 10:18PM

As suggested elsewhere, even more important than raw inventory is the number of days forward cover, which I believe is the same as number of days supply. The source for this figure is below

This Week in Petroleum

In "analyzing the analysis" I still feel pundits are underestimating the amount of risk premium that the market is allocating to the crude price. You just have to look at the price of crude from the point Bush used the term "Axis of Evil" to see it marked a major inflection point. Oil has never looked back.

Of course that risk premium is not unjustified. One bad decision and the whole Middle East supply can come into question.

Which brings up another factor which I don't see brought up too often. One inventory levels are nowhere near historical all time highs, even though production levels are. All producers are just wearing out horses getting the oil of the ground...and they are just barely keeping up. And of course that brings us back to the risk premium.

An article where I came across the term forward cover is below...it has some good points.

Concern Over Oil

A better picture of the oil COT structure can be seen with the link below. Again there is nothing there to suggest that the market is at extremes despite the record price.

OIL COT


I have read some opinions that have stated that production levels should be regained fairly quickly post Katrina. However past experience suggests this is optimistic

According to Sheila McNulty in Houston and James Boxell and Javier Blas in London

"Last September, Ivan caused huge disruption to oil production for several months after pipelines were damaged by mudslides in the Mississippi delta. It also destroyed seven platforms and severely damaged six others but the impact of the pipeline damage was more serious.

Production from the Gulf of Mexico was still 200,000 barrels a day below normal two months after Ivan devastated the coastline"


Right now I think the only thing that can really put a dent in the oil bull, is a severe dent on the demand side in the form of a global recession.

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