STOP with the Oil Glut rants already.. and we have plenty of Storage Capacity Left

All of sudden everyone is a Bear on Oil. In fact now you have many of those who never thought we would get down into the $40s, declaring we're filled to the gills and prices will soon collapse. That may be the case, but not because of inventory reasons. It would happen if the Dollar continues to rip higher (which i will address in a new post shortly after).

The US is not running out of Storage capacity, contrary to what you read by the EIA.

"Oil began the day lower after the IEA, which advises industrialized countries on energy, warned the global glut was building and the United States may soon run out of tanks to store crude. U.S. supply so far shows precious little sign of slowing down,  the IEA said. Quite to the contrary, it continues to defy expectations." -http://finance.yahoo.com/news/brent-holds-above-57-bargain-034958839.html?l=1

Are we going to let these statements actually dictate how we are going to trade with out digging deeper into actual analysis, instead of solely relying on these talking heads word. Since October, national inventory of crude oil has been increasing 1 million barrels every week. Yes at first blush, that seems like we have an OIL GLUT, but those numbers are not telling you about those that are storing Crude oil in anticipation of higher prices later this year. The market is Contango, so it makes sense for participants to store oil now and sell in 6months time locking in at a price that is ~$6 higher. 

Just because someone says we have the highest inventories of Crude in decades, doesn't mean its bearish news. We need to get to the facts, which most pundits miss. How much storage capacity is there at Cushing? The Answer is 71million barrels with more storage under construction. So that means if we continue building inventories at the same pace as the previous 6 months, it would take 4 months to be at Capacity. But there are events that won't make that happen because we are entering the driving season and refineries are coming back online, so Oil that is being stored, won't go into storage next month but go to a refinery. The difference of how many barrels a refinery uses in the summer vs. the previous 3 months is 1million barrels. So that means don't expect more builds to happen as the summer driving season begins. 

2 more factors are that production will slowly come back down as rigs are being taken offline and secondly check out how many SUVs have been sold in recent months which will lead to some marginal increase in consumption. 

Finally check out what the EIA published a few weeks back:

We are only at 60% capacity. Relax we have PLENTY of storage room and there's no need to panic about where to put the oil.

What is the driving force for the price action in Oil ? THE DOLLAR!

I will address this in the next post.