Monday, October 10, 2016

Art Berman Says Oil Inventories Are MUCH Less Than Reported

Mr. Berman is pretty much hanging his reputation on this article. If he's right he has discovered a scam of massive proportions and is well on his way to becoming a multi-billionaire. If he is wrong he is a conspiracy-minded fool.
WTI $51.32 up $1.51.

From OilPrice:

The Billion Barrel Oil Swindle: 80% Of U.S. Oil Reserves Are Unaccounted-For
U.S. crude oil storage is filling up with unaccounted-for oil. There is a lot more oil in storage than the amount that can be accounted for by domestic production and imports.
That’s a big problem since oil prices move up or down based on the U.S. crude oil storage report. Oil stocks in inventory represent surplus supply. Increasing or decreasing inventory levels generally push prices lower or higher because they indicate trends toward longer term over-supply or under-supply.

Why Inventories Matter
Inventory levels have reached record highs since the oil-price collapse in 2014. This surplus supply is a major factor keeping oil prices low.

Current inventories are 45 million barrels higher than 2015 levels, which were more than 100 million barrels higher than the average from 2010 through 2014 (Figure 1). Until the present surplus is reduced by almost 150 million barrels down to the 2010-2014 average, there is little technical possibility of a sustained oil-price recovery.
Figure 1. U.S. Crude Inventories Are ~150 Million Barrels Above Average Levels. 
Source: EIA, Crude Oil Peak and Labyrinth Consulting Services, Inc.
U.S. inventories are critical because stock levels are published every week by the U.S. EIA (Energy Information Administration). The IEA (International Energy Agency) publishes OECD inventories, but that data is only published monthly and it measures liquids but not crude oil. It also largely parallels U.S. stock levels that account for almost half of its volume. Inventories for the rest of the world are more speculative.

Understanding U.S. Stock Levels
Understanding U.S. stock levels should be straight-forward. Every Wednesday, EIA publishes the Weekly Petroleum Status Report which includes a table similar to Figure 2.
Figure 2. EIA publishes adjustments and defines them as “Unaccounted-for Oil.” 
Source: EIA U.S. Petroleum Status Weekly (Week Ending September 16, 2016),
 Crude Oil Peak and Labyrinth Consulting Services, Inc.
The calculation to determine the expected weekly stock change is fairly simple:

Stock Change = Domestic Production + Net Imports – Crude Oil Input to Refineries
Domestic production and net imports account for crude oil supply, and refinery inputs account for the volume of oil that is refined into petroleum products. If there is a surplus, it should show up as an addition to inventory and a deficit, as a withdrawal from inventory.

But that’s not how it works because EIA uses an adjustment in order to balance the books (Table 1).
Table 1. Calculation of Crude Oil Stock Change. 
Source: EIA Petroleum Status Weekly, Crude Oil Peak and Labyrinth Consulting Services, Inc.
The logic is that estimated stock levels in tank farms and underground storage are relatively dependable and that any imbalance must be from less reliable production, net import or refinery intake data.

There is nothing wrong with adjustment factors if they are small in comparison to what is to be balanced. In the Table 1 example from September 2016, however, the adjustment is 60 percent of the stock change–a bit too much.

A one-off perhaps? No, it’s a permanent problem that has gotten worse during the last several years.
Figure 3 shows that crude oil supply and refinery intake of oil vary considerably on a weekly basis. The balance is cumulatively negative over time beginning with a zero balance in January 1983. That suggests that crude oil stocks should be falling over time but instead, they have been rising....MUCH MORE