Wednesday, April 22, 2009

If It's Wednesday, It's the Oil Storage Report

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Every Wednesday at 10:30AM the EIA (Engergy Information Agency) releases it oil inventory report for the U.S. This not only includes the oil at the NYMEX storage facility at Cushing Oklahoma (actually down two weeks ago, although the drop didn't get press attention), but oil at refineries, oil just arriving by ship, etc. It also includes the oil in the Strategic Petroleum Reserve, which is not available for general use except during an emergency. Media coverage has continually reiterated that there is a 'glut of oil' and that we are 'drowning in oil' even though there is only approximately 18 days of oil in storage (this fact remains unmentioned).

While you will continually see references in the media to the drop in global demand for oil, you will see far fewer references to falling supply. In many articles you won't see this key piece of information mentioned at all. World demand is estimated to have fallen from 87 to 84 million barrels a day because of the current economic decline. However, OPEC alone has cut daily production by over 3 million barrels. The decline in usage may also be overestimated. A report out of China, currently the worlds second largest oil consumer, today indicated that year over year demand for oil in March dropped a "whopping" 0.25% (you would need a magnifying glass to notice the change).

Falling oil production isn't just the result of evil plotters and maldoers like OPEC as the American press would have you believe, but is being caused by oil being depleted from major fields. Both North Sea and Mexican oil production are falling rapidly simply because the oil is running out. Production in the Cantarell field in Mexico, the second largest in the world, is dropping by 15% a year. This is one of the major sources of oil for the U.S. As early as five years from now, the oil being pumped from Cantarell may be so little that there will only be enough for internal use in Mexico. This will make the U.S. even more dependent on oil from our "friends" in Venezuela and the politically unstable corruptocracy of Nigeria. Even worse, the recent drop in oil prices has caused a number of production projects to be cancelled and this will add to the inevitable oil squeeze that will be taking place in the next few years.

The oil report today indicated more oil in storage than the consensus estimate. Oil, the commodity, went down on the news. Some oil stocks such as PDS and HTE are doing exceptionally well today however. The seasonals for oil are bullish at until at least June, and maybe into the summer, and there is likely decent money to be made until then in the short term. While a price pull back this fall/winter is probable because of seasonal patterns, that should be considered a major long term buying opportunity.

NEXT: IMF Notices Recession; Possible Sovereign Defaults

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

No comments: