Feb 5: U.S. Petroleum Exports? Whiskey Tango Foxtrot?
Energy Economist Jim Williams of WTRG Economics teased an amazing story out of this week’s EIA oil report in a client note today. The latest monthly data show that net imports of petroleum products to the U.S. have dropped below 500,000 barrels per day, down from a high of 4 million barrels per day in early 2006.
Source: WTRG Economics
This means that U.S. demand for petroleum products is almost completely self-sustaining – something we’ve never achieved in at least 10 years, according to my limited data table. The amazing drop in product imports was entirely consumption driven. Demand for every petroleum product went into virtual free-fall in early 2006.
Source: WTRG Economics
Consumers were abnormally harsh on all petroleum-derived products during the recession, but distillate fuel oil, used to make diesel fuel and heating oil, clearly fared the worst. Consumption of distillates is down roughly 20% from 2007 levels. Diesel fuel demand (a bell-weather indicator for long-haul trucking and rail shipping) remains abysmal, as does demand for heating oil, which can’t compete with cheap natural gas in the residential and commercial heating sectors.
Source: WTRG Economics
As a result, the U.S. has repositioned itself from a 200,000 bpd net importer of distillates into a 0.5 million bpd net exporter of distillate fuel. After peaking near 0.8 million bpd in 2008, U.S. exports fell sharply as the economy began to recover.
However, for distillates, the recovery party was short-lived. Gasoline consumption now appears to have bottomed, but distillate demand is lifeless. This is a predicament for refiners, because both distillate fuel and gasoline emerge from a cracked barrel of crude oil. Rather than risk exposure to this hot potato, refiners are ratcheting up distillate exports once again.
In my previous post about gasoline consumption I referenced something that energy analyst Stephen Schork told his clients on Tuesday:“No one is denying that the recovery has begun, and began in late 2009. But the recovered economy will be very different to the one we had in 2007.”
Would anyone like to guess what other bizarre mutations we have to look forward to?
Feb 3: Gasoline Demand Way Down, Not Coming Back
The Bureau of Economic Analysis released its Personal Consumption Expenditure report for Q4 2009 last Thursday. The report affirmed that consumers are finally spending their way out of the great recession.
However, post-recession spending patterns are notably different from pre-recession spending – especially in key areas like transportation and energy.
For example, consumer spending on gasoline last quarter was down $106.5 billion from its all-time high in Q2 2008, and spending on motor vehicles dropped 4% to $318.5 billion between the 3rd and 4th quarters of 2009. However, spending on transportation services is steadily climbing, increasing $3.1 billion from the prior quarter to $309.4 billion.
Source: The Schork Report
This means that Americans are spending less on their cars and more on the bus. If these trends continue, it will signify a miraculous change in consumer behavioral patterns.
Energy analyst Stephen Schork wrote this in his research report on Tuesday:
“No one is denying that the recovery has begun, and began in late 2009. But the recovered economy will be very different to the one we had in 2007. Much gasoline expenditure has been wiped off the map and is not coming back. Without this end demand for product, crude prices are fundamentally crippled on the upper bound. Whether bulls realize this is another matter.
He later added “the bulls probably do realize how bad the fundamentals are for crude oil, but they probably just don’t care. Yesterday was the first trading day of the new month, so Wall Street wanted to get back in the game, despite the news from the BEA….”
Feb 2: Scary Oil Stories
Yesterday my Dad emailed me the following cryptic message after he read my post about crude prices:
“Chuck, be weary of bear traps!”
I rarely disagree with him on oil and gas matters since he skillfully runs an E&P company and has an impressive track-record trading NYMEX futures. However, his warning eerily reminded me of something else he used to tell me on camping trips when I was a kid. I wracked my brain until it hurt, but I couldn’t quite make the connection. Then it suddenly hit me: Bigfoot.
The Fourth Best Movie Ever
In recent memory, quite a few successful traders have profited from excellent scary storytelling abilities. For example, Goldman Sachs scared the crap out of Wall Street with its convincing tale that China had turned into an oil-crazed vampire. A few years before that, energy traders convinced us that Hurricane Katrina would flatten oil refineries and spaghettify offshore oil rigs in the Gulf of Mexico. Neither of those things happened, but the scary stories still drove up energy prices.
Now days, whenever I hear a new scary story from a futures trader, my gut reaction is to say “I’m too old for that stuff now.”
I am scared of bear traps – as long as they’re spring-loaded, have steel teeth, and are capable of trapping real live bears. That’s because YouTube and Dateline NBC have reams of hard data showing what a bear trap can do to a human leg. But right now I don’t see any fundamental energy data that could potentially turn my argument into a bloody stump. In yesterday’s post I quoted energy economist Jim Williams saying this: “There is little data to support the current price of crude oil near $70, let alone prices above $80 per barrel earlier in the month.”
Now, to come full circle, crude prices may very well remain in the $70 – $80 range. But if that happens, it will be in spite of the data – not caused by it. The only things that can keep prices high right now are more scary stories.
So who’s up for roasting marshmallows?
Feb 1: Three Charts Show Why Crude Oil is Overvalued
These three crude metrics suggest that crude oil is fundamentally overvalued:
1. U.S. PETROLEUM CONSUMPTION:
Source: WTRG Economics
Data: According to the latest EIA data, U.S. petroleum consumption over the past four weeks averaged 18.75 million barrels per day. That’s down 1.5 million barrels per day (7.4%) from the 5-year average range. Consumption over the last 12 months is at its lowest level in 12 years.
Prognosis: Consumers aren’t travelling and businesses aren’t making anything, so nobody wants to buy crude oil.
2. PETROLEUM INVENTORIES:
Source: WTRG Economics
Data: Crude stocks are 4.1% above their 5-year average. Combined, crude oil and petroleum product inventories are at their highest levels in 11 years.
Prognosis: U.S. storage tanks are filled to the brim with crude oil that nobody wants to buy.
3. DAYS IN INVENTORY:
Source: WTRG Economics
Data: The inventory coverage ratio represents the number of days the U.S. can supply current consumption from its inventories without importing more crude oil. It currently stands at 55.7 days, compared to a 5-year average of 50.1 days.
Prognosis: OPEC needs a U.S. coverage ratio of around 52 days in order to influence global prices. At current levels, anything OPEC did to boost prices would be fundamentally irrelevant.
Conclusion: “There is little data to support the current price of crude oil near $70, let alone prices above $80 per barrel earlier in the month,” according to Jim Williams, energy economist at WTRG Economics.
Judging Goldman Sachs, Part 2
(Check out Part 1 of this series here if you missed it. Click here to see the entire series on Goldman Sachs.) In my last three posts I used some traditional (& unprecise) tools to measure public sentiment toward Goldman Sachs. Here I will use a newer tool that offers greater precision by processing data streams from the semantic web.
The tool I’m using here is called “Top of Mind” by Jodange Software. According to its website, “Jodange Top of Mind™ goes beyond keywords and objective data to uniquely isolate and track people’s opinions and sentiments about key topics over time.” I will discuss this tool in greater detail later, but I encourage skeptics to check it out for yourselves at the Jodange website.
The following charts display Jodange’s opinion index of Goldman Sachs over three different time periods. The index represents an amalgamation of opinions about GS from various news sources and “opinion leaders.” Positive scores signify positive opinions, etc. The volume chart displays the number of opinions that were used to build the index.
Jodange Top of Mind
Jodange Top of Mind
Jodange Top of Mind
When the sentiment data above is measured along with other metrics like stock prices and Google search results, public opinions about Goldman Sachs become increasingly more tangible and useful for journalists and analysts. People generally assume that a drop in Goldman’s stock price is indicative of worsening public sentiment, but stock price analysis alone leaves too many variables uncontrolled to generate statistically relevant conclusions. This is just one example of how data analysis tools will improve as we continue to embrace Web 2.0. Very exciting stuff.
