Oil Update……”Inflation Bet” Coming???

Oil Update……”Inflation Bet” Coming???

“Davidson” submits:

The single trend most telling in the US data is Imports. If the world is awash in oil, why has the US Import data risen even as US Production has fallen 1.2mil BBL/Day the past 12mos? US imports continue to push 12mos highs countering the downtrend in US Production.

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The answer I think lies in the US Weekly Refinery Inputs. The US made numerous refinery upgrades earlier in the cycle which has created a definable uptrend since 2009. By installing more efficient equipment and catalysts, refiners can supply global needs with greater profit margins than competitors. The US has been actively doing this and requires a level of inventory to maintain refinery output.

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The math is simple. If one is refining ~17mil BBL/Day then having inventories of 520mil BBLs is only 30dys of supply. 2yrs ago US refinery inputs were at a low level of ~14.5mil BBL/Day and inventories at 410mil BBL represented a little over 28days of supply.


We do not have adequate detail on oil Production/Consumption globally and many have made many inferences using only US data to represent global supply/demand. There are no trend changes in the US data which suggest we have an ‘oil glut’. One would have expected a slow down in Imports even if US Production slumped. No signs of this!! There has certainly been a price change in $WTI and $Brent, but this has been correlated to the US$.


When all is said and done, I suspect global oil supply/demand is in rough balance and has for the most part been so all along. I think the past few years has been an exercise of Momentum Investor market psychology swinging from ‘Inflation Bets’ to ‘Deflation Bets’.


The next move in my opinion will be a swing back to ‘Inflation Bets’

Updated on

Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.
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