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Title : Who Are You Gonna Believe? EIA Or OPEC? -- September 22, 2017
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Who Are You Gonna Believe? EIA Or OPEC? -- September 22, 2017

Over at Reuters via Twitter: OPEC says it is winning the battle to curb the oil glut (which, by the way, was a self-inflicted wound).

Output cuts by OPEC and other oil producers are clearing a supply glut that has weighed on crude prices for three years, ministers said at a meeting on Friday to review the pact that expires in March 2018.

The Organization of the Petroleum Exporting Countries, Russia and several other producers have cut production by about 1.8 million barrels per day (bpd) since January.

The group is considering extending the deal beyond its March expiry, although two sources said Friday's gathering was unlikely to make a specific recommendation on an extension.

So, is OPEC winning that battle? Not if you look at US crude oil supply data for the past three weeks. 

EIA data shows that US crude oil inventories have increased significantly for each of the last three weeks. The time to re-balance, once down to 27 weeks is now back up to 46 weeks. This factoid has never been reported on CNBC to the best of my knowledge.

Source for the following data. 

First the graph:

Data for the past two years reveals that the current number of days of gasoline supply has hit a recent record (30.8 days) and rarely has it gotten above 31 days and never 32 days. So at 30.8 days, at the upper end of the range:

But then, compare the days of gasoline supply for the last two years with a more "historical look." This is for the 2006 - 2008 period. Note that, in general, we are talking about less than 20 days of gasoline supply in the US. Only twice did the supply hit greater than 22 days.

It may not sound like much, the difference between 30 days and 20 days but in weeks, the former rounds to about four (4) weeks and the latter rounds to three (3) weeks. A ten-day difference starts to approach two weeks, which is a very significant length of time for those studying "US logistics" for any product.

In general, starting about 30 years ago, it was determined that a two-week supply chain for almost any product in the US was "just about right." Prior to that time, it was felt that a longer period was needed to ensure adequate "product on the shelf." Today, storing stuff longer than two weeks at the retail point-of-sale is not economically sound.

Going forward:

• demand is likely to taper off and won't pick up until the driving season begins next spring
• supply is likely to remain about the same if WTI remains above $50
• the question is, with a 30-day supply of gasoline and demand tapering off, how much increase in crude oil production will occur if the price of oil trends toward $60
• I think the answer to the last question depends a lot on global demand, less on US demand for the next nine months

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