King Abdullah of Saudi Arabia said once again today, “We have nothing to do with the current sharp increase in crude prices,” attributing the soaring cost for oil to speculators of various stripes.

Taking him at his word that it is speculators (rumor mongers, traders, bankers, other OPEC members, and so forth) who are mostly responsible for soaring prices in the face of dramatic and obvious demand destruction in the US and EU and deflation in other sectors, a question remains. Where’s the inventory? There’s said to be almost 2 million gross bpd coming on stream; it ought to be showing up somewhere. A report indicated that Iran is said to have as much as perhaps 28 million barrels in parked tankers, if that report is true, but that’s only a day and a half of US consumption. Shouldn’t we be beginning to have oil coming out of our ears?

The total petroleum stocks have been unchanged in the US for the past twenty years or so. There do not seem to be conspicuous builds of inventories around the world, or perhaps we just haven’t read about them. Of course, due to better supply chain management, especially Just-In-Time planning for inventories, it is easier for producing countries and companies to better control and limit build-ups of inventory in storage tanks. (Indeed, Just-In-Time has been blamed for previous price spikes.)

Something about this picture doesn’t add up. It is certainly in the interests of commodity speculators and some OPEC producers to talk up the price of oil as they play the long side of the futures market. It is also in the interests of the oil companies themselves not to carry excess inventories at high prices — just as it is in the interests of US companies to try to keep the pressure on prices to gain access to areas currently off-limits for drilling. So there are a number of reasons that various market players would want to give an appearance that would continue to show supply constraints, and could influence events to some extent by not producing or transporting some of that incremental capacity. But having said that, shouldn’t some additional inventory be showing up somewhere soon?

This entry was posted on Tuesday, July 1st, 2008 at 9:28 pm and is filed under business, General, MSM. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.