Oil, Inventories, and Bubbles

I was a little confused by Paul also, because we have inventory storage when we leave it in the ground. Oil producers are speculating.

If a billion barrels represents a 90 day supply, inventory is pretty meaningless as a means of speculating, but if you were, you would certainly do that little bit as well. And the reason that non-traditional firms would not use the traditional firms for that first would be..? They may not even be speculating as such but assuring supplies for their own personal use.

Some of the largest owners of physical oil are investment banks. They use their proprietary knowledge of the markets and their vast inventory to profit.

I am no longer in one of those banks, so I can't say whether they are actively selling vs. actively buying. I will say that a lot of physical oil storage does not show up in statistics. I don't think that the total stockpiles would be enough to drastically move prices for too long. (Flows are vey high relative to stocks.)

One thing to note... Everyone is actively hedging. Airlines, transport companies, utilities... They don't want to risk volitility in their fuel costs (or their output prices in the case of power generators). Not too many big industrial players buy in the the spot market. Not sure how that distorts the shrt term price movements... Especially when everyone is more risk averse than ever w/ respect to further price spikes.

Leaving oil in the ground isn't speculating, its managing an asset.

I don't know how industry data on inventories is collected; it may be just from the majors. But I know that all oil in the US is priced with the stipulation of delivery to Cushing, OK. A lot of oil pipelines cross at Cushing and the area has huge oil storage facilities. I live near Tulsa and there are reports that oil storage tank construction at Cushing is booming. So there may be something to what the oil expert says.