2nd Update:
Well, we got that big surprise, primarily because crude imports were sharply down from last week. Some excerpts:
U.S. crude oil refinery inputs averaged 14.9 million barrels per day during the week ending November 16, down 151,000 barrels per day from the previous week’s average. Refineries operated at 87.0 percent of their operable capacity last week.
U.S. crude oil imports averaged over 9.8 million barrels per day last week, down 667,000 barrels per day from the previous week. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 1.1 million barrels compared to the previous week. At 313.6 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year.
Total motor gasoline inventories increased by 0.2 million barrels last week, and are below the lower end of the average range. Distillate fuel inventories decreased by 2.4 million barrels, but are in the middle of the average range for this time of year. Total commercial petroleum inventories decreased by 6.9 million barrels last week, and are in the upper half of the average range for this time of year.
Updated: As oil stands again at the cusp of $100, here is what analysts expect for this week’s report report:
Analysts surveyed by Dow Jones Newswires, on average, predict that crude oil inventories rose by 800,000 barrels last week, while refinery use grew by 0.4 percentage point to 88.1 percent of capacity.
Gasoline inventories likely grew by 700,000 barrels, the analysts predicted, while inventories of distillates, which include heating oil and diesel fuel, fell by 400,000 barrels.
While oil supplies likely rose last week, prices were being supported Tuesday by concerns there would be a bullish surprise in the EIA report, such as an unexpected decline in inventories.
If we see that unexpected decline, then WTI should break $100.
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Last week, I noted that even though there was a very big surprise with respect to crude inventories, the market seemed slow to react. I indicated that it may have just been an artifact, and that was in fact what it turned out to be. I get my quotes from the NYMEX site, and those quotes are delayed by 15 minutes. So, no opportunities to make money as a result of a slow-moving market. Actually, I would have been stunned if traders weren’t poised to react to a large surprise in the report, but it seemed as if they weren’t. That’s why I posed the question.
In fact, someone posted a very interesting graph that suggests that in fact the movement in price happened prior to the release of the report:
December WTI Following Last Week’s TWIP Release
I know that graph is hard to read. Here is the link for the original graphic, in case you want to see the fine details. What it looks like is that about 4 minutes prior to the release of the inventory report, the price rapidly dropped over $1/bbl, implying that contracts were being dumped. This could of course be innocent; someone could have rolled the dice and guessed that the report would be bearish. That could also be due to the resolution on that graph (i.e., what you see above may have actually happened just after the report’s release).
But for a suspicious person like me, I started wondering about just how many people have access to this data. It would be very lucrative to sell some advance information, so I am curious as to how the EIA safeguards the early release of the numbers. How many people know the numbers before they are released? What safeguards exist to prevent someone from selling the information? Do any of the EIA’s employees drive a Ferrari? (kidding)
I asked Doug MacIntyre, author of This Week in Petroleum, if he could comment on this. Doug wrote:
Robert,
EIA understands completely the seriousness of our data and carefully safeguard it before it gets released. We know that a lot of money can be made if the data were known prematurely, and everyone involved is very careful not to divulge ANY information to ANYONE before the release. In fact, we even go a little farther and try not to comment on the data to the press until at least 1 hour after the data are released. I am confident that the data were not, and have not been compromised.
EIA will not discuss the specific procedures we do to safeguard the data or divulge the number of people that have access to the data, as we believe that any information regarding the procedures we follow should be safeguarded as much as the data.
Thanks for explaining that, Doug.
Trading on leaked commodity reports is as old as the industry itself.
Remember the movie “Trading Places?” The heroes (Eddie Murphy and Dan Akroyd) intercept the orange juice crop report and give the villans a fake one. The next day, they clean everyone out in the pits.
There is also the “mosaic theory,” which involves the stitching together of many points of NON-material non-public information (i.e. inventory at just one refinery) into a “mosaic” which together creates the true picture (i.e., put all the refinery data together.) This is legal, and many of the bigger trading firms (Ospraie Management comes to mind) do a LOT of legwork in this regard.
Robert,
EIA understands completely the seriousness of our data and carefully safeguard it before it gets released. We know that a lot of money can be made if the data were known prematurely, and everyone involved is very careful not to divulge ANY information to ANYONE before the release. In fact, we even go a little farther and try not to comment on the data to the press until at least 1 hour after the data are released. I am confident that the data were not, and have not been compromised.
EIA will not discuss the specific procedures we do to safeguard the data or divulge the number of people that have access to the data, as we believe that any information regarding the procedures we follow should be safeguarded as much as the data.
Should you have further questions, I can be reached at: douglas.macintyre@eia.doe.gov .
I’m an analyst with an energy trading company & I know first hand how careful they are with their data.
Their people are definitely trained not to comment at all.
As far as security measures go, I think one of their people once told me that the release data was kept on a computer that wasn’t even on the main network & that they transferred the data to the web-server minutes before the actual release.
Robert, would you say that any potential selloff and price reduction that was going to have occured is now past, or do you think near-term future declines in price are still a possibility?
i would say selloffs are a really big possibility. a huge possibility…in fact, on avg that should be a money maker right now.
LEAKS IN GOV’T ENERGY DATA–
first of all, gov’t data security is an OXYMORON of the highest calibre. need we go into the constant admitted/not admitted leaks in the executive and legislative branches seen in the press weekly.
our most strategic secrets/data are stolen and misplaced. even investment/arbitrage/merger data gets leaked ocassionally.
anyone familiar with gov’t systems design/security protocol knows how to get data, if significant effort is made.
on the other hand, some data is so bad/incorrect that frequent revision is needed.
based upon the above, i believe weekly energy data could be compromised. but no more/worse than other gov’t or financial data. sometimes the instigators are caught.
the market goes on non the less. no better game in town.
fran
robert-
if i was privy to inside info last week, could i not have-
1] played contrarian,expecting price to go down for several hours,bought then, sold later in day when reality returned to mkt.
2] done an option play with similar info to my benefit
i did not need to take action just ahead of report. but i could use leaked info either way.
likely, with good transparency
i just looked at the 5 minute data from that day ; it appears to me that it was the 5 minute period AFTER data release that saw the big move (range 9300 to 9362 before the report ; 9328 to 92.24 in the 5 minutes after – assuming the report came out at 10:30 eastern). So, I don’t think there is any evidence of a “leak”.
This is the wrong forum to bring up the topic, but worth mentioning is yesterday’s lead story in Wall Street Journal all about oil markets….it did mention the idea that there is plenty of oil, just in the wrong places, a problem I refer to (undiplomatically) as “Thug Oil,” and which RR might be calling “Peak Oil Lite.”
In thinking (okay, obsessing) about oil the last couple of years this idea has been gaining clarity in my mind (clarity there is not always easy). Were Western-style governments sitting atop oil reserves, I think we would have little problem……
Worse, I see no solutions….thug states have staying power, and often regime-change just means even worse bad guys take over…..
I would like to see RR address this idea directly….
Some countries eventually come out of the woods, and Libya might be an example, and for a while it looked like Russia and former SU states would….but other countries get worse, re Venezuela, Iran and Iraq…
The good news is that Western-style economies are tremendously resilient, and full of resourceful people…we can adapt, the key to victory in everything, from life to business to war….
I think the worst is already over on oil prices, and we may see lower prices in 20 years than now…
RR, any comments?
Robert,
Don’t assume that anyone actually believes the IEA anymore! The reports are going to be even more suspect in the future…
cheers!
“…thug states have staying power, and often regime-change just means even worse bad guys take over…“
Unless you do it the hard, but correct, way, like we’re doing in Iraq. We can’t afford Iraq to be another Thug state, so we’re midwifing a representative democracy. It’s neither quick, nor clean, nor easy. But worth it.
It strikes me that “who’s a thug” is somewhat in the eye of the beholder.
larryd writes, “We can’t afford Iraq to be another Thug state, so ” we’ve shown that we are a bigger thug state and are working to enforce our will upon them. They’re trying to boot the security ‘contractors’ who have essentially legal immunity to kill as many brown skinned people as they want in this ‘thug state.’ Meanwhile, the only real legislation that the US wants them to pass is the oil sharing agreements which would be a boon to US companies.
Call them thug states all you want, but one set of nations were only playing with selling their resources which the other side wants, while the other side has actively invaded to enforce it’s desires. And one can’t really say anything past that point without proving godwin’s law correct.
Larryd-
I am not sure we have installed a more-stable government in Iraq, or can. It probably would have been better to just bribe Saddam and get the oil.
How will women fare in this new Iraq, that Rumsfeld called an “Islamic democracy”? If one-half of a population retreat into submission (along with all religious minorities, who were evidently protected by the Baathists), is that a democracy?
But getting back to strictly US interests: I hope we can establish a stable government, in which robust exploration and development of oil can occur. But even in the event of a success in Iraq, the price has been far too high. $1.5 trillion for some oil would have been better spent subsidizing conservation or creating prizes for the successful introduction of very high MPG cars.
I sympathize with anybody who truly wants to establish a democracy in Iraq, or any of the Thug States. But given what people in those countries might vote in — even worse bad guys — I even wonder if democracy is a good idea. For example, a free Iraq might well align itself with Iran, given the chance, and create a regional theocracy.
I just hope the democracy concept includes women and religious minorities. The Christians, Jews and other small groups have already left Iraq, along with the professional and middle class.
Jeez, what an effing mess. This makes corn-ethanol look like a winner.
On Thanksgiving, we can all be thankful by some stroke of luck we were born into Western-style democracies. Those ideals are worth fighting for. But you gotta pick your spots.