from streetinsight
thestreet.com
Andy Weissman
Keep Close Watch on the Weekly DOE Petroleum Inventory Report
10/20/04 01:48 PM EDT
Global oil supplies are likely to come under intense pressure this winter.
Greenspan significantly underestimating threat to global economy.
Today's Weekly DOE Petroleum Report continues a trend we've been seeing since well before Hurricane Ivan entered the Gulf: More often than not in recent weeks, the weekly draw down from stocks reported by DOE has been greater than anticipated and – more significantly – significantly greater than the historical norm for this time of year (when often we might still be seeing a modest build).
Few other weekly data points deserve more careful scrutiny by Fund managers. And this applies not just energy specialists, but to managers in every discipline.
As we've been advising readers of our weekly newsletter since mid-summer, unless the weather this winter is exceptionally mild throughout much of the northern hemisphere, the call on global oil production this winter is likely to be at least 2.0 million to 2.4 million barrels/day. The most knowledgeable experts we talk to, however, doubt that global oil production can be increased by more than 100,000 barrels/day. EIA's forecast actually projects a modest decline.
Even if refiners are able to significantly increase production of heating oil, therefore, as we head into the heart of the winter total OECD non-governmental inventories are likely to begin declining at an all-time record rate – with an average decline for the quarter, for the OECD countries as a group, of as much as 1.9 million to 2.3 million barrels/day. By the end of the first quarter of next year, OECD inventories could decline by as much as 15%, with very little likelihood that they can be replenished significantly next spring.
As a result, we believe that $50/barrel effectively may have become a floor on oil prices. We could see a $55/barrel or even a $60/barrel floor soon, with the potential for much higher prices once we reach the middle of winter – which potentially could occur as soon as another 8 to 10 weeks.
Further, fundamentally we believe Alan Greenspan is mis-assessing the potential impact of higher oil prices on the U.S. and global economies.
Even a high tech economy needs fuel and feedstock to operate. As demand for heating oil increases significantly, without a corresponding increase in the total petroleum supplies available on the other uses, the total amount fuel and feedstock available for other uses inevitably will decline – potentially by as much as 350 million to 400 million barrels over the next 6 months (i.e., a deficit of 2.0 million to 2.4 million barrels/day X 182 days).
This in turn, however, inevitably means that at least some current manufacturing production and other economic activity must be driven out of the market.
Just how much – and just how high oil prices rise – is likely to be closely tied to the figures contained in the seemingly arcane reports issued weekly by DOE.
If you haven't already done so, therefore, mark Wednesday's at 10:30 a.m. on your calendars. The information released by DOE every week at that time, and whether you anticipate it correctly in the investment strategy you adopt for your portfolio, may turn out to be the single most important factor driving your performance over the next several months.
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