Friday, October 16, 2009

Oil Oil Oil

Oil is something very rarely I touch. Why? I don't really know. I have never really understood it. I can understand agriculture and even metals but oil has always been on the edge for me and something I have never been very comfortable with to invest in it short or long. Thank goodness because I would have been short from 60 on. Oil broke out Wednesday/Thursday and is up again today. We are drowning in oil. I know the arguments: peak oil is coming, boom in Asia is going to cause us to not have enough oil, production is outpacing new exploration. Yes, yes, I know. And it may all be valid. I really don't know but the price of oil today in what is being used verses the supply seems way out whack. I don't know how much premium you want to attach to the what ifs for oil in the future but it is higher than what I would care for.

Take this report from the Energy Information Administration (click on the Weekly Petroleum Status Report). On page 9 there is a graph (figure 2) (it is below) that show U.S. Stocks of crude oil and petroleum products.

This graph is through July. 1,841.5 million barrels of oil. This is up from 1698.1 million barrels a year ago. That is an 8.4% increase. Notice how high it is above the normal range. If you take just crude oil not counting what is in the strategic reserve excluding heating oil, propane, gasoline etc.etc. you have an increase of 17.6%!!!! From 295 million barrels to 347 million barrels.

The refiners are not running at very tight capacity and so when the report that gasoline stocks dropped last week by 5.2 million barrels is that any surprise? Oh but oil increased by 400k barrels. Enough for higher prices in oil.

Like I said. I am not an oil trader. I very rarely invest in oil stocks and when I do it is usually just the really big boys, not speculative exploration companies. I am sure I will get several emails from my oil friends on this detail or that detail on why oil is going to the moon but like everything else in this world, oil just does not make logical sense. Part of the bubble that the bubble blowers were able to blow.

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