FINANCIAL ICEBERG

Always consider hidden risks

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CHARTS

To drown in OIL

( From Ecointersect , EIA, EconMatters, Science Monitor, Haver, Motley Fool )​



( Read US Mileage Oct 25 ) ​

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US consumption is trending down because of the slow economy and energy efficiency.​​

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There can be a major pullback in oil prices, we are presently already in the deflationary stage, but you haven`t seen anything yet, because we are increasing production (we currently produce more than we consume each day) around the world as prices are real high relative to demand. What happens when the central bank stimulus stops being effective, and it stops altogether, and the debt issues are finally addressed? That is when the real recession takes hold, and the only solution then to massive oversupply is stopping production. The real question is who stops production: is it North America, Russia or OPEC? The real answer in the boom and bust cycles that play out in oil industry is all of the above, in the end everyone is going to have to cut back production as prices are going to drop like a rock in the next bear cycle in the oil industry.

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Global Crude Oil and Liquid Fuels Overview



​​EIA expects oil markets to tighten in the first quarter of 2013, but increasing global supply more than offsets higher global consumption through the rest of the forecast period.



​​Projected world supply increases by 1.1 million bbl/d in 2013 and 2.0 million bbl/d in 2014, with most of the growth coming from outside the Organization of the Petroleum Exporting Countries (OPEC). North America will account for much of this growth.



​​Projected world liquid fuels consumption grows by an annual average of 1.0 million bbl/d in 2013 and 1.4 million bbl/d in 2014. Countries outside the Organization for Economic Cooperation and Development (OECD) drive expected consumption growth. ( See graph below )







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Oil Glut at Cushing Storage Facility



​​The final EIA Inventory report : Cushing inventories decreased 1.5 million barrels to a 49.3 million. Now inventories stand ( mar 8 2013 ) All this build in Cushing happened even as the Seaway pipeline began pumping crude from Cushing, Oklahoma to a major U.S. refining hub in Houston, Texas in May of 2012. ( See graph below )

Total Crude Oil and Petroleum Products

US Consumption​

US OIL Inventories



U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.6 million barrels from the previous week. At 384.0 million barrels ( march 8 2013 ), U.S. crude oil inventories are well above the upper limit of the average range for this time of year. ​​ ( See graph below )​

US Production



​​​​The Rise in Domestic Pro​duction

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​U.S. crude oil production (including lease condensate) averaged almost 6.5 million barrels per day in September 2012, the highest volume in nearly 15 years. The last time the United States produced 6.5 million barrels per day or more of crude oil was in January 1998. Since September 2011, U.S. production has increased by more than 900,000 barrels per day.

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​EIA expects U.S. crude oil production to continue to grow rapidly over the next two years, increasing from an average 6.4 million bbl/d in 2012 to average 7.3 million bbl/d in 2013 and 7.8 million bbl/d in 2014. ( See graph below )

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​​A New Era: Growing Economy with Lower Energy Prices ?



In fact, more supply than demand, even with a robust economy, because part of the reason the world economy will be doing so well is all the global enterprises out there producing oil. It’s a good business with very high margins when compared to many other industries with the past decade of higher prices.



Consequently, even if the US economy really takes off in 2013 as some have forecasted, don`t look for demand to overtake supply in the equation. The domestic oil renaissance means that we could have a booming economy, and still have more supply than we can use each day. Thus it is actually possible to have an era with a great economy, and even lower oil prices due to the domestic oil boom.

Consequences



Lower OIL Imports​​

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In the four weeks ended Feb 15, the U.S. imported less oil than we've imported in any period since the year 2000, a level we haven't seen consistently since 1996. It's a product of increased oil drilling across the U.S., and there's a demand aspect as well. Even as the economy has improved over the past three years, the amount of oil supplied to U.S. consumers has fallen.



​​​U.S. crude oil imports averaged 7.7 million barrels per day last week, up by 176 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged over 7.7 million barrels per day, 1.1 million barrels per day below the same four-week period last year.



​Leading the decline in imports was an 11.0% drop (-20.9% y/y) in the value of petroleum imports. The quantity of petroleum product imports was off 7.2% m/m and it was down 17.5% y/y. ( See graphs below )

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Efficiencies



Efficiency becomes reality

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Oil drilling gets a lot of the credit for the declining imports, but declining demand should get equal play. According to the U.S. Energy Information Administration, petroleum product supplied in the first 11 months of 2012 averaged 18.639 million barrels per day, 10.4% lower than 2005. Part of this drop is due to the recession that we're still recovering from, but efficiency is playing a bigger role than many people think.



Usage has dropped since 2010 despite growing GDP, and fuel efficiency standards are playing a role. The Obama administration passed a new CAFE standard of 54.5 mpg for auto manufacturers that takes effect in 2025. This is driving long-term planning, but the reason for better efficiency may be closer to the pump.





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US Consumption

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Total U.S. liquid fuels consumption fell from 20.8 million bbl/d in 2005 to 18.6 million bbl/d in 2012. EIA expects total consumption to rise slowly over the next two years to an average of 18.7 million bbl/d in 2014, driven by increases in distillate fuel and liquefied petroleum gas consumption, with mostly flat gasoline and jet fuel consumption. ( See graph below )

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