Wednesday, May 3, 2017

A New Metric: Weeks To "Re-Balance" -- May 3, 2017

As promised, some days ago, a new metric. This will give me something to do, and it should be lots of fun, something to look forward to each Wednesday.

These are the "facts." For years (decades?) the US got along just fine with 350 million bbls of crude oil in storage and 21 days' supply based on "current" usage at the time.

Today, the US has 530 million bbls of crude oil in storage and 32 days' of supply based on "current" usage.

I define "rebalacing" as getting back to 21 days of supply or 350 million bbls of crude oil in storage (yes, there will be a slight change as US demand for crude oil increases or decreases; folks who understand calculus will note that).

So, here we go.

First, the John Kemp weekly graph:

The EIA does us a disservice by not including the line for 2014 or 2010. The average is skewed by the last two years of production. If one removed the last two years of production, the 10-year median would be a whole lot lower.

But I digress.

Second, the spreadsheet. This week the spreadsheet is very, very short -- two rows -- because we just started the spreadsheet.

The first column is the number of weeks that the data has been tracked at the blog.

The second column is the date the data was posted by John Kemp.

The third column is the "drawdown" in crude oil in millions of bbls as noted by John Kemp (source: EIA).

The fourth column is the amount of US crude oil in storage in millions of bbls (not including the SPR).

The fifth column is the number of weeks it will take to "re-balance" based on this week's drawdown.

So, for this week, the drawdown was an incredibly paltry 0.9 million bbls.

That brings us to 528 million bbls.

528 - 350 = 178 million bbls.

178 million bbls divided by this week's drawndown (an incredibly paltry 0.9 million bbls) = 198 weeks.

At the rate that US crude oil supplies decreased this week from a week ago, it will take 178 weeks to get back to 350  million bbls of crude oil in US storage. That's almost four years. (Data for week 2 and following weeks was added after the original post.) (Update: methodology was wrong in some parts of this table; it has been updated and corrected at this post):

Weeks to RB
Week 0
Apr 26, 2017

Week 1
May 3, 2017
Week 2
    May 10, 2017
Week 3

Week 4


The big question is: how did the crude oil market react? The price of WTI dropped below $48 yesterday. Traders are obviously seeing the same problem.

The bigger question is: when did traders get this information? Based on the time of the price move, it is clear to me that "inside" traders got this information yesterday; the rest of us got it today. The big move in WTI pricing was yesterday. Today, the price of WTI moved just one cent -- WTI is down $0.01 today (at this moment -- May 3, 2017; 12:35 p.m. CDT). Just saying.

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