While oil prices have fallen 16% in the past four days and petrol prices have followed, those thinking that the oil crisis of 2003 is over would be well-advised to look past these short term market movements and glance at the fundamentals of supply and demand presently operating in the market.
It has been suggested (See…Market Rally May Not Be What It Seems ) that we are experiencing a rigged gold and stockmarket in advance of war in Iraq, the following clearly suggests we are also experiencing a rigged oil market.
The two graphs below are produced from the offical U.S. Department of Energy's Weekly Petroleum report the data of which is accessible…. HERE.
Firstly we have a graph showing 13 years of US petroleum stocks. This shows aggregate US stocks as distinct from US Crude Oil Stocks, the figure for which is usually referred to in oil market analysis reports.
In the last DOE market report, published last Thursday NZT, the figure for US Crude Oil Stocks fell report under 270 million barrels the so-called Lower Operating Level for the first time. This sparked the most recent spike in prices close to $40 a barrel.
As can be seen total U.S. oil stocks have fallen sharply through 2003 and are now below 900 million barrels for the first time since November 2000, during another period when prices went to USD$40 a barrel.
More significantly this graph clearly shows that U.S. oil stocks are now at the lowest level in the last 13 years at least, which is as long as this statistical series goes. Back in 1990 US refinery inputs were on average 20% lower than they are now, as was consumption.
Significantly nothing has changed since the report upon which this data was published last week, that is excepting for the fact that we have moved closer to war.
What is not immediately apparent from this graph is the rate of decline in total stocks.
It would appear this issue has not been canvassed widely in most market commentaries either as they tend to concentrate on the Crude Stocks Figure. However it would appear from analysing the figures more closely that U.S. refineries have been reducing their production in order to maintain Crude Stocks are levels more acceptable to the market.
The result of this has been to move evidence of declining stocks down the table to downstream products, namely diesel oil, petroleum, heating oil, jet fuel etc.
This graph shows just the past three years of data, and projects forward the current rate of decline in oil stocks through till the middle of May. During this period – with a cessation of Iraqi oil exports to the U.S. - total U.S. stocks can be expected to at least continue their current rate of decline.
If this happens U.S. oil stocks will be by May at levels never experienced in recent history, nearly a full 100 million barrels lower than the previously lowest ever level.
And the market is punting that the price is going to stabilise!