To: Rob Shilling who wrote (33082 ) 12/18/1998 2:02:00 AM From: Elmer Read Replies (2) | Respond to
Rob, furthermore, in the IEA's Dec. monthly report they actually revised Sept. 98 OECD inventories down by 20 million barrels to 2,791 million barrels vs Sept. 97 inventories of 2,639 million barrels. More importantly, October 98 OECD inventories were 2,788 million barrels vs 2,664 million barrels in Oct. 97. This is 124 million barrels or only 4.7% higher inventories than when we had $20+ oil!! Many top oil analysts see inventory liquidations of at least 1.5 mmbpd in Q1 of 99. If this actually occurs, we are back to year ago levels by March. I think this is fairly realistic as supply now seems to be falling faster than any fall off in demand. Also, I think the IEA and analyst's in general have been quick to lower their demand projections and slow to lower their supply forecasts. The critics say, hey, look at the price of oil there's got to be more inventories out there that are not being accounted for. I am skeptical of that argument given what I see as a very inefficient market. Besides the price of oil what data points can they rely on to make this assertion. IMO, it can't be floating around in tankers or tanker rates would have been soaring over the last few months and not falling like they have been. Also, why would the Asian countries be hoarding oil over the last year when they needed currency. We have also seen recent reports saying that China, South Korea, and Indonesia plan on increasing their oil purchases in Q1 of 99 which lends credence to the idea that maybe demand for petroleum products in Asia didn't fall off as much as people have thought because the lower purchases of oil the over the past few months has been more of a result of inventory destocking and not as much as from lower underlying demand. IMHO, the experts have then incorrectly extrapolated the supposed lower demand into 99 and are going to eventually find out that there was indeed significant inventory destocking and the lower crude purchases from Asia hasn't all been underlying demand related. IMHO, what we need is a catalyst (more cuts, improved OPEC compliance, further evidence of Asia demand coming back, colder weather accompanied by some large oil and products drawdowns, oil traders start looking at the facts) and time(but months, not years as many are calling for), to change market psychology and turn the tide. Oil prices could then potentially recover quite fast. Sorry for the long post, but I get worked up quite easily.
