“Men are at a disadvantage when we argue with our women cause we have a need to make sense” - Comedian Chris Rock

Argue the sexist nature of that comment all you’d like. It sums up my problem with the inventory report (or “petroleum propaganda report”) we get every Wednesday from our Federal Government.


I am at a disadvantage when assessing the U.S. Department of Energy’s inventory report, because I, too, have a need to make sense.

Here was the HEADLINE REPORT:

Crude Oil inventories declined 6.8 million barrels

Gasoline inventories rose 5.22 million barrels

Distillate inventories rose 1.52 million barrels

OK, to John Q. Public it would seem reasonable to conclude inventories went nowhere. The system drew down some crude and built an equivalent amount of finished products. No problem, right?

Wrong. If you take the time to read and analyze the report, something John Q. Public simply will not do, but compulsives like me will happily do so, you will find that, surprise, surprise, our government fudges numbers so that they fit nice-nice in the headlines.

Buried in the text of the “special report” you will find this annoying little statement, paragraph 3:

"U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 6.8 million barrels compared to the previous week. At 282.8 million barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year. Total motor gasoline inventories increased by 5.3 million barrels last week, and are in the upper half of the average range. Both finished gasoline inventories and gasoline blending components inventories increased last week. Distillate fuel inventories increased by 1.5 million barrels, and are in the lower half of the average range for this time of year. Propane/propylene inventories decreased by 3.2 million barrels last week. Total commercial petroleum inventories decreased by 8.1 million barrels last week, and are in the bottom half of the average range for this time of year." EIA weekly petroleum report, link above


NOW READ THE LAST LINE FROM THE ABOVE PARAGRAPH AGAIN. Got it?

Well, if crude oil was drawn down nearly equally to the build in gasoline and distillates (diesel and heating oil) what’s up with the 8.1 million barrel decline for the week?

And so, I did the absurd, and actually had the temerity to go line by line in the report… What a concept, right? I mean would a reporter at the Wall Street Journal or the New York Times do such a silly thing? Nope, and that is why the U.S. is going to get blindsided by this - For the simple reason that our journalists in the mainstream media are so innumerate that they are intimidated by a little basic arithmetic and a spreadsheet.

So here’s the deal.

3 million of the 8.1 million draw was propane. No big deal (unless you heat with propane like most of rural America) as this is not a transportation fuel.

The other 5 million barrels was spread around in “Other Oil”, “Residual Oil”, and “Unfinished Oil”.

So why not just combine Crude Oil with these other categories and report that as your headline number? I am sure there is a logical explanation, like for the convenience of the folks assembling the data, or for politicians in the middle of a tough primary fight, or for the benefit of professional traders (versus the little guy), and I am sure that is all very reasonable.

It is important to point out that the consumption data do NOT POINT TO RECESSION. I have argued in this forum several weeks ago that we will not enter recession this year if: The Federal Reserve cuts interest rates aggressively, and; the oil import picture does not decline. The data shows an increase in availability of oil and an even greater increase in consumption. Of course, therein lies the rub against my argument. Imports will have to rise to avoid recession. If they do not, all bets are off - no matter what the Fed does.

Lastly, the accuracy of the data in general is questionable at best, but it is the best we have. Unfortunately, that is not good enough. We might trip over a significant shortage in the very near future. There is a minimum volume of oil in the system below which we cannot go without going into spot shortage situations. How soon? Months, not years. This is by no means a certainty, but a significant probability. You heard it hear first (and I am not hoping for any particular outcome. I just call them as I see them and I use a calculator because I have little faith in the claims of others. If you doubt my reports, I have given you the links to the various sites that I used as my sources).


Mentatt (at) yahoo (dot) com