Now you see it and now you don’t.
Barrels of oil are disappearing before our very eyes. Oil prices bounced after the American Petroleum Institute reported that 6.5 million barrels of oil seemingly vanished into thin air. Did aliens come down to earth and confiscate our supply? Or did demand suddenly skyrocket? Or maybe it was David Copperfield in a grand illusion?
Well it is an illusion with a slight of hand, but it was not done by a magician but by an accountant! In the first sign that the year is coming to an end, refiners and oil companies in a holiday tradition make barrels of oil disappear because they are taxed on inventory in storage at the end of the year. It seems that if the API is correct that tradition is now well under way. The last in first out “LIFO” accounting practice makes it advantageous to carry as little inventory as possible at the end of the year as inventory’s for tax purposes are valued using prices at the start of the year, so with the drop in price and refiners able to shield higher priced barrels refiners should get a big tax break. Yet because prices have fallen hard refiners may not be as panicked to unload inventory, unless they think prices are going a lot lower. Based on the drawdown it looks like they are betting that could happen.
Yet in the short term it is giving us a bit of a bounce. The API also reported that gasoline supply fell by 35,000 barrels and a surprise 2.5 million barrel build in distillate supply. Maybe it wasn’t that cold after all.
Now oil will turn its focus back to the OPEC price war and macroeconomics. The Saudi’s are making no conciliatory statements surrounding his oil price war. They say that they will not cut production unless the United States cuts production as well. Prince Turki Al-Faisal, Saudi Arabia’s former intelligence head, took it a step further saying that Saudi Arabia won’t give up market share “at this time for anybody.” OPEC once again pumped over its quota pumping out 30.56 million barrels a day in November. While it was 424,000 barrels a day less than in October it was due more to maintence issues than any change of heart by the cartel.
Fed minutes and the ADP jobs report could move us not to mention the weekly Energy Information Administration Petroleum Status report.
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