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There is something fishy about oil

Not my area of expertise and so trying to dig up information on how this thing actually works. Has not made sense so far.

There is a lot of statistics on the EIA site where these weekly numbers come from but very little explanation of why and how.

For example, after weeks of declines in crude oil imports, the imports suddenly surged by 10% in the week 1/1 - 1/8. This in the face of increasing domestic production (though domestic oil is of a different type and not always a direct substitute for imports). But finished products inventory has been increasing for weeks, total crude oil inventory has been relatively flat.

So who makes the decision to suddenly increase imports by 10% and why? This is what led to to increased inventory numbers that is crashing the markets today and lowering oil prices. It is certainly not in the financial interests of refiners to do such errors or miscalculations in a falling price market, so why would that happen? Saudis/OPEC can output whatever they want but unless someone here decides to import it (and seemingly against their financial interests), the inventories should rise in the Middle East not in the US.

Not looking for tin foil hat theories but very little makes sense so far on how this thing actually works and what synthetic financial instruments if any may be in play that affects these numbers. I don't even know if EIA measures just physical amounts or also includes paper contracts without possession (in which case, it may be affected by futures trading strategies than just refiner demands).

If anyone here knows or is interested in helping collectively digging this thing out just out of curiosity, please do share.


  • image
    Just for refinery info
    Early in 2015, Petrobras commissioned the first of Rnest’s two 75,000-b/d delayed coking units, as well as an 82,000-b/d diesel hydrotreater as part of the refinery’s Phase 2 startup (OGJ Online, Mar. 19, 2015; Mar. 13, 2015).
    Once fully operational, Rnest will have the capacity to process 230,000 b/d of 16° gravity oil for the production of mainly low-sulfur diesel, but petroleum coke, LPG, and heavy coker gas oil, as well as naphtha.

    Just from general/anecdotal reading ,these huge complexes just can't change their inputs (16° gravity oil ,sweet crude,light oil,sour crude,high sulfur crude etc.) very easily ,if at all.East coast probably uses more heating oil for buildings and plenty of diesel for all the trucks on the road. Easier to accept an imported tanker of the right grade of crude
    to refine the products for the market?
    Good Sources
    With additional links on the upper dashboard
  • Thanks for the info.

    You are right about not being able to change the type of oil as input but I was observing the increase in a week of the same input being acquired and stored. Given that refiners can vary the utilization of these plants almost in real time why would they suddenly land up with a week of oversupply which had to be ordered and received. My uneducated guess is that it is the result of being in the wrong end of a speculative futures contract and being forced to buy if not actually forced to take delivery but counted in the stockpile nevertheless. It is sort of like short covering except that you can not immediately sell it in case of oil.

    If it is a purely plant operation thing, managing the supply (supply chain management) even in the face of varying demand is a well-studied and practiced practice in industrial engineering with some very sophisticated algorithms in software and oil industry profits depends on it. 10% increase in all crude imports from one week to next is huge, so clearly not just a single plant/refiner miscalculation of demand. And this affects the entire market!

    What kind of financial betting/hedgingis being done here and who is on the winning side of such "miscalculation"? Other than the Saudis that is.

    Seems very odd that none of the financial media wants to ask such questions when there is so much wealth destruction going on because of it. Especially when there could be a risk of contagion from such oversupply induced price drops.

    I find it very odd.
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