Last week, crude oil prices dropped below $50/bbl, in part due to continued increases in U.S. crude oil inventories, and fell further over the next few days. Then yesterday, prices perked up by $1.14 to $48.86/bbl; again one of the factors was the weekly inventory number from the Energy Information Administration which showed inventories down by a fraction of a percentage point for the week. The market seems to react spontaneously to changes in that crude-stocks statistic. Up is bearish, down is bullish. These days even a very modest decline in inventories is bullish. But serious analysis requires a more detailed, more nuanced understanding of why crude oil inventories behave as they do. Were inventories driven up by higher production or lower refinery runs? By higher imports? By lower exports? The reasons behind the inventory change are more important than the change itself. Today we continue our series on the modeling of U.S. crude oil supply and demand, and the sourcing of input data used in those calculations.
The focus of this blog series is on the growing significance of the U.S. supply/demand balance in the Shale Era, and on the data that’s available to assess it on a regular basis. In Part 1, we discussed the relationship between crude oil prices and the U.S. supply/demand balance, focusing on 1) the degree to which the two are out of balance and 2) the direction supply and demand are headed in relation to each other (closer to balance or further apart). Only by keeping a sharp eye on the ever-changing relationship between crude supply and crude consumption—and by anticipating shifts in that relationship—can oil traders and others whose daily success or failure depends on crude pricing trends make informed decisions.
Visualize the infrastructure behind U.S. NGL movement.
The U.S. NGLs Map provides a comprehensive view of the transport, processing, and export networks moving NGLs across the U.S.
Inventory levels are key. Every barrel of oil that is either produced within the U.S. or imported into the country needs to go somewhere—to a U.S. refinery, to an export terminal for shipment overseas, or into storage. Refineries and exports take the crude out of circulation—that oil is gone, as far as the U.S. crude market is concerned. Inventories are different—they are the market “balancer”, and as a result crude storage levels are always on the market’s mind. The inventory build-up that EIA reported last week (an 8.2-MMbbl increase to a record 528.4 MMbbl in storage—not counting what’s in the Strategic Petroleum Reserve) set off alarm bells—in part because EIA also said that domestic crude production was up for the third week in a row (to 9.09 MMb/d) and probably headed higher later this year and in 2018—and oil prices (which had traded largely within a narrow $53-to-$56/bbl range for three solid months) were suddenly south of $50/bbl.
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About the song
“One Piece at a Time” was written by Wayne Kemp and appears as the second song on side one of Johnny Cash’s 54th studio album of the same name. The novelty song tells the tale of an auto worker at the Cadillac assembly plant in Detroit who puts a Cadillac together out of parts he has stolen from the plant for decades. The term “psychobilly,” describing a subgenre of rockabilly, comes from a lyric in the song. Released as a single in March 1976, it went to #1 on the Billboard Hot Country and #20 on the Billboard Hot 100 Singles charts. Personnel on the record were: Johnny Cash (vocal, acoustic guitar), Bob Wooten (electric guitar), Marshall Grant (bass), Larry McCoy (piano) and WS Holland (drums).
The album, One Piece at a Time, was recorded at House of Cash Recording Studio in Nashville in 1975-76 and produced by Charlie Bragg and Don Davis. Released in May 1976, it went to #2 on the Billboard Top Country and #185 on the Billboard 200 Albums charts. Two singles were released from the LP.
Johnny Cash was an iconic American country music singer and songwriter known as the “Man in Black.” He released 68 studio albums, 16 live albums, four soundtrack albums, 105 compilation albums, and 170 singles. He has sold more than 90 million records worldwide. He is a member of the Country Music Hall of Fame, Rock and Roll Hall of Fame, Gospel Music Hall of Fame, and the Rockabilly Hall of Fame. He has received Kennedy Center Honors and a National Medal of Arts. Johnny Cash died in Nashville in September 2003 at the age of 71.
