Oil topping $33
by: denintex 11/18/03 07:20 pm
finance.messages.yahoo.com
Today's crude spike was related to concerns about declining gasoline inventory, already per last week, 8.4 million bl. below last year. Indeed, the entire energy supply complex is worrisome to traders, with most components of the oil complex at inventory levels below the 5-year average: (oil, 12.4); HO,(.5); total US commercial inventories (50.6). While the IEA has recently adjusted global oil demand upward, global commercial oil inventory is lean. At the end of September, the IEA reported inventory sufficient to cover just 53 days of demand in the major industrialized countries, a level not changed since June and near the lows touched in 2000.
The bears have reasonably expected "flush" Nov. ng supply to result in a plummeting of ng prices and have argued such for months, basing there argument on flush storage and demand destruction. But the market has obviously not been persuaded. It is now much more sophisticated, because it has to be. In the past, when there existed huge global surpluses in both oil and gas supply and flush production coming in from elephant fields on and offshore, the market could rely on the single indicator of storage as the primary weathervane for gas pricing. But we now live in a changed world, so the indicators have changed, from a simplistic simple examination of how much gas is in supply to a more complex examination of a myriad of interrelated energy components.
For now "flush ng storage" means little when:
1) basins are rapidly depleting;
2) global oil demand is rising;
3) refineries are operating at capacity;
4) storage is inadequate;
5) pipelines are antiquated; and,
6) the entire energy system, operating at full steam, can just barely get by.
In this environment, ng prices can move and have moved in conjunction with a myriad of reports from the energy fields, because the market is skittish about what might affect supply, and such items have included this year, reports on:
1) global oil inventory,
2) production declines for ng and oil,
3) rising oil demand (China);
4) lack of "elephant" discoveries for both o&g
5) Mideast uncertainties;
6) ng import declines (10% next year, according to Lehman);
7) Big Oil drilling exodus from NA;
9) refinery utilization at "burn out levels," staying just one step ahead of demand; and
10) y/y comparisons for gasoline and HO.
The bears have focused on two indicators, storage and demand destruction, but in doing so have slighted at least 10 other indicators. With winter now at the doorstep, viewing all of the foregoing, I believe the last thing to expect is declining gas prices, for the foregoing factors taken together point to a very strained energy supply, that will be particularly "trader worrisome" once winter begins, demand soars, HO inventory concerns build, and gas is strongly sucked from inventory. In my judgment, this is the recipe for soaring gas prices compatible to last year's with the onset of any sustained period of cold weather. Also on the trader's mind will be the need for to rebuild post-winter supply for next winter in the face of the probability of less production, less imports and the need for another mild summer and lack of a hurricane season to facilitate that activity.
Throw in an Energy bill enactment, and I think the bull should prosper very well this winter, even in the land drillers (I disagree on the latter issue with others on this board).
No offense intended to the bears here. JMHO. |
