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Leonard Brecken

Leonard Brecken

Leonard is a former portfolio manager and principal at Brecken Capital LLC, a hedge fund focused on domestic equities. You can reach Leonard on Twitter.

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A Plot To Hold Down Oil Prices Or Just A Happy Coincidence?

The recent unprecedented surge in oil imports has again prompted a review of things here. In a prior story, we wrote that the lack of capacity to process light sweet crude at refineries produced via shale plays could be playing a role in the stock build. As mentioned previously, refineries over the next 24 months are expected to add 700,000 B/D in capacity to handle this type of crude. In the meantime, we have noticed an unusual amount of crude being imported, possibly as a result of this imbalance in refinery capacity. Or could it be that a more sinister plot is afoot?

Related: Latest EIA Predictions Should Be Taken With More Than A Pinch Of Salt

To quantify the scale of the issue, we turn to Cornerstone Analytics’ work in uncovering the magnitude of the impact of imports on the rise in oil inventory stocks. We haven’t seen this level of import imbalance period since 2013, as the chart below demonstrates via Cornerstone. In the past 6 months, the level of imports relative to the requirement or need by refineries has jumped not once but twice. The 1M B/D “gap” goes a long way in explaining the oil inventory stock build which has been 5MB-10MB per week. Related: Has The Bakken Peaked?

If adjusted, the builds over the past 6 months without such imports would not exist at all or at the very least be greatly reduced. So is this occurring as part of the inability of refineries to handle the mix of output domestically or is this part of some plot to build inventories to crash the prices of oil? Quite frankly we can’t say for sure but anomalies such as this must be exposed so that they can be debated given that there has been ample debate on Saudi motivations for holding down oil prices and the ongoing media cheerleading on lower oil prices. Related: The Latest Media Attempts To Suppress Oil Prices

Regardless, it is very clear that the source of the inventory build is not tied to US production but tied to actual imports, whatever the reason. Further investigation into this should be pursued and only the refineries themselves have the real answer. What is clear is that the level of imports will normalize and, when combined with lower US production, the oil imbalance seems very likely to correct in the near future.

CrudeImportsPeriod

By Leonard Brecken of Oilprice.com

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Leave a comment
  • malx on April 23 2015 said:
    Glad you touched on this topic.
  • Charles on April 23 2015 said:
    A bit amazing when US crude oil isn't in the free trade marketplace. I wonder how much U.S. crude the Saudi Aramco/Shell-owned refinery, Motiva located in Port Aurthur Texas is purchasing. The largest in the U.S. NyTimes 4/4/13. Could easily count the number of ships lined up to unload in the channel. Something seems a little fishy.
  • Charles on April 23 2015 said:
    Really interesting that the smart Wall Street Analysts can't figure out and report on the Oil Supply Chain. Seems to me that would be a prerequisite to covering and Oil Stock. Especially futures.

    It's relatively easy to figure out why the bathtub at Cushing is filling up....if Imports are increasing and U.S. production is decreasing.... Big Oil is diversified in the Market Channel (and Saudi Aramaco is focused on that too). So, they can move profits from E&P to Refining. A big shell game.

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