Oil Supplies continue to Grow
Research for Online Investors

by John Dalt

5/01/09

EIA reports that crude oil inventories continued to build.  This week rather than show the two charts I have shared previously I have condensed the data table.

The left column is the different crude oil storage areas in the U.S.  I have shown the inventory for 3/27, 4/24 and one year ago.  The amount in storage has been growing since August of ’08; the Days of Supply has increased every month since January ’09.  Every storage area has larger supplies than one year ago, averaging 17%.  Days of supply are 19% higher than one year ago.  To see the chart with seven weeks of data go to the Energy Information Administration.

The EIA also has information on supply of gasoline, propane and distillates you can access from the site.  This is a weekly report I try to watch, the price of crude oil is sensitive to supply.  If supply were the only driver of price, we would have $25 oil right now.  What is causing the price of oil to hold close to $50?  There three inputs that I think are important:

·          Dollar weakness.

·          Economic Recovery

·          Fear Premium

The dollar is losing value, and interest rates are creeping up.  Oil is a world commodity, as the dollar loses value; it takes more dollars to buy it.  There are signs that the economy is bottoming and could soon start to recover.  The stock market and commodity markets try to price in future profits and demand.  If either of these two inputs reverses, the price of oil could fall.  The dollar miraculously strengthening or news that caused fear of economic recovery being delayed would immediately be reflected in lower oil prices.  The “fear” premium in oil is the wild card.  A terrorist strike or global conflict can cause a spike in oil.  The Somali pirates grabbing an oil tanker now and then are a minor annoyance.  Pakistan tipping to the Taliban and N. Korea threatening a ballistic missile launch or nuclear test are very destabilizing.  These hot spots in the world do not directly affect the supply of oil in the world, but destabilize world order.  Markets like order, conflicts have a way of bleeding off into other areas and creating havoc.

The swine flu hype is reaching a fever pitch.  We need a little perspective.  Avian flu killed 61% of infected patients, SARS mortality was 10%, so far swine flu is resulting in death for 7% of suffers.  Regular flu causes the death of between 250,000 and 500,000 worldwide each year.  This year only 12,000 Americans have died from normal flu.  In 1918, the flu pandemic killed between 20 and 40 million people.  Another point is we are coming into warmer weather and sunshine; people are not locked up in their houses, schools and offices.  This should help stop or slow the transfer of any communicable disease.  The warm weather should also help individuals resist respiratory illnesses of any type.  So far, we have 149 dead in Mexico, one Mexican child dead in Houston.

Breaking news is that Vice-President Biden has ties to a hedge fund of funds that is blowing up, this could get interesting!  His son and brother purchased a hedge fund that is now the subject of lawsuits over missing money.  His son has left while his brother is pursuing a lawsuit against the former owners.  It seems that the family failed in their responsibility to do proper due diligence. You can read about Joe Biden's Family problems with links to more detail.

American Axle stopped deliveries to Chrysler today, forcing Chrysler to halt production. American Axle announced lay-offs off 1000 people. Bankruptcy, like a public hanging, helps concentrate the mind. Chrysler announced today that some of their plant closings would be permanent.

The bank “stress tests” were to be released on Monday, but have been delayed until Thursday.  Banks have met with Treasury to argue if they should have to raise equity.  The rumor on the street is that as many a six banks may be on the troubled list.

I have posted a new article from George Kingott about gold, "Who will send Gold to over $2000" It makes some interesting points.

Remember, tomorrow I will be available for one hour on Skype starting at 10 a.m. central time to answer your investing questions.  If you would like to participate, please send me your question ahead of time to john@galtstock.com then call between 10 and 11 on Saturday morning at john.galtstock.com  We will give priority to questions sent in ahead of time.  I am excited about trying this; I hope you will join us.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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