Boom comes the doom.
Sometimes people care about the American Petroleum Institute (API) numbers, sometimes people don’t. The downside of crude oil is a lot like the Presidential election. All the oil bears get the attention and the headlines like Hillary. The mainstream wants us to believe that this is our only and the inevitable choice. The alternative is too hard to fathom, but there’s a real possibility that it’s lurking out there and could eventually rule the roost. All the headlines today are about cracking the “glass ceiling” and how the Democratic National Convention (DNC) is now unified. Child please. We’re also getting plenty of headlines about how the API is proof that the oil glut in America is not going away. We only saw a drawdown of 800,000 barrels last week and it’s well shy of the two million consensus and the favored number of yours truly, Chief Sitting Bull. Just two weeks ago, the headlines scoffed at the idea the API knew anything when they posted a huge six million barrel weekly draw. Just like nobody wants to talk about that this Dem Presidential nominee is one of the first that was still being challenged right up to the nomination.
We just have to play along because perception is reality. This could be a lot like the stock market and we may have to get through a few years of positive moves before people get tired about hearing how the bubble is ready to burst. Lying in wait is a summer driving season that even if it drops 300,000 barrels per day (last year’s slippage), we’re going to end the year at a record number for U.S. gasoline demand (9.35 million barrels per day). Or if the U.S. refining system drops for maintenance, we’re not really going to slip too far under 16 million barrels per day and also set a two-year record for refinery runs that will average just above 16 million barrels per day. And nobody is going to pay attention to the fact that U.S. crude oil production continues to fall and will continue to do so as rigs that were profitable expire under margins that keep slipping out of profitability. Sorry my teeming millions, we can’t hear what we don’t want to see.
What happens from here is that money follows the white rabbit down the hole. Right now that isn’t a hole, but a full barrel of oil that just looks like an abyss into Wonderland. Nobody wants to hear about Venezuela and the lost country of 2.5 million barrels per day of production. Nor do they want to hear about the declining North Sea and it’s lack of investment to keep the Brent benchmark relevant. There’s no love for Nigeria that will also find the rebels doing more than sabotaging pipelines for oil that is not worth their efforts. We can skip the issues in the Middle East that have halted the progress in Iraq, Syria and Libya and their oil hopes. This is only about what is easy to see because when the reality hits, we’re going to all stand around in shock and awe and wonder how we didn’t see $80 oil coming. I recall back in 2002 I was standing on a soap box and telling the world that $30 oil was coming while everyone was booing me down. West Texas Intermediate (WTI) was trading at $14 a barrel and everyone was thinking that we were heading back down to $10. I knew there was a storm coming, but the masses ran it back to $12 so they could laugh at me. In 2003 I had my $30 and in 2004 I saw $50 without getting the respect of Roubini. Up and away to $70 and eventually $147. I wonder where those folks holding out for $10 are today.