Posts tagged “crude oil inventories”
Given the amount of air time the crude oil storage situation received back in March and April, this might be a good time to revisit that situation. If you recall, there was a great amount of hand-wringing regarding the crude oil storage picture in the U.S. Inventories were high and they were continuing to rise. There were a great many articles like this one, which assured us the situation was dire: US running out of room to store oil; price collapse next?
“The U.S. has so much crude that it is running out of places to put it, and that could drive oil and gasoline prices even lower in the coming months. For the past seven weeks, the United States has been producing and importing an average of 1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country’s main trading hub in Cushing, Oklahoma, pushing U.S. supplies to their highest point in at least 80 years, the Energy Department reported last week.”
I have been pretty adamant — some may say stubbornly so — about my expectations for crude prices this year. I have argued against the notion that oil prices were going to fall to $20 or $30/bbl for several reasons. In a nutshell, those reasons are:
- This is well below the marginal cost of shale oil production, and you can expect shale oil supplies to begin contracting in response to falling prices
- Growing crude oil inventories will peak soon for seasonal reasons
- Lower oil prices will spur demand
I have made this argument a number of places, including in a recent Wall Street Journal article. Noted oil analyst Philip Verleger made a comment following that article that those calling for collapsing prices are correct, and he patted himself on the back with the comment “A few of us who make a living in the field did (call the price collapse correct)” while arguing that those writing for the Wall Street Journal don’t “seem to understand what is going on” and are “in the dark ages.” Them’s fighting words! CONTINUE»
In my previous column – Is the U.S. Running Out of Crude Oil Storage? – I discussed the tightening crude oil storage picture in the U.S. That column has already generated the highest level of feedback and inquiries from readers and the media of any I have written in quite some time. So I want to follow up and drill down a little more, and show why this situation is more dynamic than is typically conveyed.
Since I wrote that article, there have been 2 more weeks of crude oil storage builds. Pundits continue to predict that crude oil prices have nowhere to go but down, because something has to give. Well, something is about to give. CONTINUE»