Watching The River Of Crude Oil. Does Anyone Know The Real Story - Ask Putin

One would think that in the day and age of computers, apps, continuous information feedback loops and other electronic means that keeping track of domestic U.S. oil supplies wouldn’t be that hard. At the very least you would believe that the estimates might be within 3–4% of reality.

Not so fast.

The U.S. government's Energy Information Administration (EIA) reported that crude inventories in the country’s storage facilities jumped by 3.1 million barrels last week, versus a 2.2 million-barrel build predicted by analysts in the weekly Reuters survey.

Being off by 33% is bad enough, isn’t it? But just yesterday, preliminary inventory data by the American Petroleum Institute suggested a drawdown of 1.2 million barrels. So, if you compare the EIA report and the API records, the swing is 4.3 million barrels. We’re not talking about pebbles on a beach here. We’re talking about 55-gallon drums of an expensive commodity.

Not surprisingly, oil prices slid after the EIA report.

At first prices seesawed in volatile trading today, trying to cling to a third day of gains even after government data showed the large U.S. crude inventory build. Perhaps traders panicked a touch, but the whole scenario speaks to the fears and inconsistencies within the energy markets when it comes to predictive data.

We would like to turn to the situation in Syria being fomented by the Russians. We believe that Putin is working hard to destabilize a tottering region in the hope that he can lean on Iraq, gain the complicity of Iran and threaten Saudi Arabia and the Gulf States in order to push energy prices back up to beefier levels.

Russia is on the brink of insolvency. This is why Putin decided to risk a war with NATO. 

According to the IMF's 2015 Consultation-Press Release and Staff Report, published on August 3, oil and natural gas exports comprised 65% of exports, 52% of the Federal government budget, and 14.5% of GDP for Russia in 2014. Including their domestic contribution to the country’s economic activity, the hydrocarbons component represents 30% of Russian GDP.

The pretend collaboration between the Saudis/OPEC and the Russians will come to little because of Russia’s precarious position economically speaking.

On October 2, Saudi Arabia’s oil minister Ali al-Naimi, said at the G-20 conference in Turkey, “Since the 1970s this industry has been experiencing sharp fluctuations in prices —up and down — which have impacted investments in the field of oil and energy, and its continuity. This volatile situation is neither in the interest of the producing nor consuming countries. The G-20 countries can contribute to the stability of the market.”

What can the last sentence mean?

Al-Naimi was essentially urging non-OPEC producers to cut back production. While not specifically saying so, his comments suggest that Saudi Arabia will continue to seek a rebound in oil prices only by a contraction in production from countries such as Russia, Canada, and the United States.

Russia, however, simply can’t cut production, even if such a move contributed to an increase in crude prices.

Russia is already deep in recession, and the ship of state is taking on more water. The Russian economy is expected to contract by 3.8% this year. The former superpower is also producing energy at the highest level in decades, hitting 10.75 million barrels per day in September – a jump of 0.4% from a month earlier.

What better time to invade another country that is conveniently located right on top of the world’s biggest oil producing region?

My, what big teeth you have.

Wishing you as always, good trading,