Eric Sprott on Energy (Nov.):
Energy Addendum: Another thing we’d like to comment on this month is the misinformation or, more accurately, the shoddy analysis being given to petroleum product inventory numbers. With the exception of this week, product inventory numbers have been coming in higher than expected, leading to a weakening in energy prices for the past two months. However, what is being neglected in all this is the impact that the IEA’s sale of strategic petroleum reserves (mostly from Europe) has had on product inventories. Following Hurricane Katrina, the 26 IEA member countries made available to the United States 60 million barrels of oil, 24 million of which was refined product. It is unclear how much of this was taken up in the market, but we would surmise almost all given that almost 50% of Gulf oil production remains shut in and almost one million barrels per day of refining capacity is still down. Who’s kidding who? This supply of potentially 800,000 barrels per day of refined product from Europe’s strategic petroleum reserve isn’t getting replaced now that it’s gone. Quite the contrary, the planned replenishment of the reserve will lead to higher demand in 2006. Make no mistake, in spite of what inventory numbers say we are consuming more than we are producing. There has been lots of spin out there, but very little analysis.
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