Idiot Contagion


Y’know, we spend so much time babbling about how stupid Congress is, we forget to point out the analysts who are just as guilty.

Take, for instance, Mr. Doug Leggate of BAML and I believe of former ML fame. I am actually a big fan of the original ML commodity analysts because they do as they say and say as they do. Or at least “said,” hard to say for sure these days. Anyway.

Shall we revisit the idea of “price = volume”? Yes, let’s.

Our good man takes last week’s oil report and says

Crude inventories fell 3.7mmbbls driven by higher utilization as WTI discounts arguably provided the incentive to run. A spike in mid west refining runs is also likely responsible for a ~1mmbbl draw at Cushing bringing the total draw to 3.2mmbbls or ~10% since early June, and total stocks back to exactly the level of 2010. With this backdrop we suggest Cushing inventories are not the driver of a near doubling of the WTI-Brent differential to $20 since early April. Rather we point to external events and the confluence of North Sea production outages, a 30% increase in E Coast utilization and the IEA oil release; we view as transitory.

Can we be honest here? Please? Let’s just get right out there and say that North America is currently producing more oil within its continent than it can consume. Cushing inventories were not the driver of the WTI-Brent discount, but simply a symptom. Much like we see stock prices drift lower in search of a buyer, WTI drifted lower in search of an acceptable arbitrage. Inventory built up (negative volume) as the differential increased in search of buyers, not the other way around. Domestic consumption was unable to fill volume, and thus price looked for the Brent arbitrage to find a bottom.

Does this not suggest we are producing enough oil within the continent to at the very least satisfy our consumption? Let’s all be sure to remember that the WTI-Brent spread widened to abnormal levels in Q4 of last year, not Q1 of this year. While the “Arab Spring” or “Spring Arab” or “I’m a bouncy schoolgirl on the corner” is the popular reason for the differential, take a step back and consider just how bad the Republicans would look if we suddenly discovered that the US was exporting oil products rather than importing crude.

For the record, I am still a registered Republican. I was from the moment I had the opportunity to sign up. In disgust and protest I have not voted Republican for 11 years. I wait hopefully for the opportunity to vote Republican again. This past week’s events suggest I might never vote Republican again.

I will bet $5 that Leggate voted for Bush.

3 Responses to “Idiot Contagion”

  1. All the US volumes are reported weekly at the website. Last week the US exported 81,888 kBBL of crude oil and petroleum products. The US imported 361,748 kBBL of crude oil and petroleum products.

    I bet the Canucks have a similar site but I haven’t bothered looking it up.

    • Analyst Bomber

      It would be interesting to tab the export/import weeklies back through Sep 2010 to see what the overall net looks like.

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