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Crude Inventories: Largest Weekly Build Since March 2001

by: Bespoke Investment Group August 21, 2008 | about stocks: DBO / OIL / UGA / USO    

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Crude oil has pulled back slightly in intraday trading following the release of the Department of Energy's [DOE] weekly inventory report.  In the report, crude oil inventories for the week ending August 15th rose by 9.3 million barrels, which marks the largest weekly build since March 2001. 

While crude showed a large build, gasoline inventories posted a large drop (-6.2 million barrels).  Interestingly, while gasoline demand has been declining, supplies have been dwindling just as fast.  This week's drop in stockpiles was the seventh largest since data begins in 1990, and it followed last week's 6.4 million barrel decline, which was the fifth largest.

In the charts below we compare this year's inventory levels with each commodity's historical average.  As shown, as we near the end of the Summer, distillate inventories remain well above average, while gasoline and crude oil stockpiles remain at lower than normal levels.

click to enlarge

Energy3_0815

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This article has 12 comments:

  •  
    Aug 20 02:26 PM
    I think the market is becoming to bullish on China. This large build and no sell-off is proof.

    Everyone says that this decrease in demand is thanks to the slow down in China to clean up the air before the Olympics. Did everyone forget that the rest of the world, including emerging markets like Russia, Brazil, and India, have NOT slowed down because of the Olympics? To add, China did not close down production country wide but only in Beijing and a few other small factory and port cities. Beijing is less than 2% (1.7% by my math in 2007) of China's GDP.

    Rest of my thoughts are at here:alphaapprentice.blogsp...
    Reply
  •  
    Aug 20 05:40 PM
    The build in crude inventory was due to a one off event. Shipping was delayed by "Edouard". Imports in the lastest reporting period rose to 11 million bpd instead of the usual 10. That's 7 million extra barrels and it completely explains the build in today's report.

    Refiners are not producing nor importing as much gasoline as last year due to demand suppression and to lower crack spreads. The important take away is that refiners don't owe anybody cheap gasoline and will cut production to stay profitable. OPEC will also cut production to maintain their price targets.

    OECD countries show reduced demand. BRIC countries show increased demand. World demand for crude is still growing. Seasonal demand in the northern hemisphere is lowest in the summer and higher by 2 million bpd in the winter. So let's see how this unfolds going into the fall shoulder season when refiners switch some production to heating oil. And then let's see how the market handles this years' winter heating season. I think we will see higher prices.
    Reply
  •  
    Aug 21 07:53 AM
    When I step back and look at the big picture today: The consumer is the largest user and every consumer everywhere is cutting back, dictates demand is dropping. Compound that with no supply problems according to OPEC and the US on the verge of drilling (regardless of time to market) bottom line is less dependence on OPEC and more supply. Compound that with rumors about speculative manipulation on price. Compound that with previous bubbles where people lost their shirt. I'm going short oil short term till it goes below $100.
    Reply
  •  
    Aug 21 08:15 AM
    What you fail to picture is the seasonal trend in these inventories. Nice observation, but completely explained by the seasonality of these numbers. Suggestion: Look at a 3-5 year picture, and see if you don't get a much better picture of what is happening.
    Reply
  •  
    Aug 21 08:46 AM
    I hope you and the American consumer don't expect gasoline prices will
    return to $1.65/gallon. Post Olympics, demand for energy will return.
    Coal is already starting to ramp back up.
    Reply
  •  
    Aug 21 10:37 AM
    Gasoline has dropped almost a dollar a gallon in a month. The gasoline figures show the expected result, people buying and using more gasoline, now that prices are lower. As long as the current crop of cars is on the road, this won't change.
    Reply
  •  
    Aug 21 12:59 PM
    All the oil bulls love to mention how global demand will drive oil into higher and higher nosebleed territory.

    My question:

    If Americans can’t afford 140dollar oil- how can China and India afford it?
    Once gas hits well over 4 bucks a gallon Americans stop driving.

    If the average American can’t afford gas- how can the average Chinese driver afford it?
    Last I checked it they don’t make as much as Americans do- where do you expect China and India to find all that cash to purchase oil at 150 and above?

    Unless they wish to bankrupt their countries- I don’t see how they will continue to blindly and ravenously purchase oil at ever increasing prices.
    Reply
  •  
    Aug 21 05:39 PM
    bob, the Chinese subsidize fuel for their citizens. The subsidies create shortages, so there is pent up demand. China and India have growing middle classes that are larger than the entire US population. They have money. Also, China is revaluing the yuan against the dollar, which moderates the price rise.

    The average American is still affording several hundred gallons of gasoline per year and demand increased each of the last 4 weeks that prices fell.
    Reply
  •  
    Aug 21 06:27 PM
    gigem77,

    I know that oil is subsidized in China- but my argument stands.

    At some point the Chinese government will stop the subsidies. Oil at what cost- if it continues at a torrid pace past 150dollar per barrel- what chance does the Yuan have?

    Inflation will decimate emerging markets if oil does not subside.
    Americans have stopped driving SUV’s mass transit usage is up- Neither the Chinese government nor its citizens will continue to purchase oil at obscene prices.

    Have you seen how small the cars are in Great Britain - mass transit in Europe is first rate. 10 dollar oil has made the Europeans extremely Spartan in their driving habits.

    Demand destruction is real- and if oil continues upwards demand will drop from the emerging markets- because they won’t be able to afford it.

    I ask- if the United States cannot afford 150dollar oil- how can the Chinese Yuan afford it?
    Reply
  •  
    Aug 21 08:13 PM
    To Ernie M. The national average price for gas has dropped about .35, not a dollar. Oil may very well go to $150-$200 a barrel----and probably stay there for a week as the world economy implodes. If people in India are buying the new $2500 Indian made car, what makes you think they can afford $10 a gallon gas?
    Reply
  •  
    Aug 22 06:39 AM
    Well bob keep your eye on the scoreboard. Global demand is up and it's going higher. Your premise is wrong, the US is affording 150 oil with only a small drop in demand. We are still burning over 20 million barrels per day of petroleum products. Demand in the BRIC countries and in OPEC is rising and they have the money to buy oil.

    Last year the price of oil rose 46% in the US. In Europe it only rose 18% due to the currency exchange differences. So the pain is not equally distributed and the weaker dollar concentrates the pain in the US.
    Reply
  •  
    Aug 22 10:49 PM
    Bob has it right.
    Reply
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