Goldman Sachs said oil demand may have exceeded supply over the last two months because inventories stored on tankers fell to an 18-month low.
Oil demand did not exceed capacity because there is a minimum of 2.5 mbpd of excess capacity. Demand may have exceeded the volume of oil that is actually being produced. Goldman said the trend for floating storage over the last two months has been down and they expect that to continue assuming oil prices hold over $75 per barrel.
I believe tanker storage is declining because the owners of that oil have been hearing all the gloom and doom over global economics and they are afraid oil prices will decline in the fall and they are liquidating while prices are still high. I don't believe the decline in tanker storage is due to a shortage of oil in the market.
OPEC has plenty of oil and their compliance with the 2008 production cut dropped to 52% in July. That means they have a minimum of 2.5 mbpd of existing production just waiting for someone to buy so they can cheat even more. When OPEC meets in October they need to officially acknowledge the increased production and change the target cut to 2.5 mbpd and then actually enforce it.
Goldman said oil held on tankers may have declined as much as 45 million barrels in June and July. The IEA said inventory at sea fell to only 21 million barrels at the end of July. The IEA claimed global demand exceeded production by 600,000 bpd in June and July.
Goldman pointed to the strengthening spreads for WTI contracts as evidence of a tighter physical market. Goldman said the spread between the current month to the 60th month gained as much as $10 per barrel. They expect the WTI forward curve to flatten in the second half of 2010 and lift WTI prices into the $85-$95 per barrel range. Goldman reiterated their buy on the December crude futures contract, currently $77.30. I am thinking the $7 drop on that contract over the last two weeks may have cost them a few bucks and they are trying to talk it back up.
In the U.S. crude supplies fell to a four-week low as reported in the EIA report on Wednesday. Imports have declined -15% since reaching a four-year high in the week of July 23rd. Shipments declined 188,000 bpd to 9.44 million in the week ended August 6th. That was down from an average of 11.1 million in the week prior to July 23rd.
Crack spreads declined to $5.637 per barrel and the lowest level since Dec-22nd. The BP Global Indicator Margin, a measure of refining profitability, averaged $4.32 a barrel on August 12th, down -21% from the second quarter. The slowing demand and the end of driving season is beginning to crimp margins ahead of the switch over to winter products and fuel blends.
Mexico said their oil output dropped during the first half of August to an average of 2.529 million bpd from 2.573 mbpd in July. This is a continued decline from their peak of 3.4 mbpd in 2004. Pemex hopes to keep production over 2.5 mbpd but it is going to be a fight.
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