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Schork Oil Outlook: American Imports—Goodbye Frying Pan, Hello Fire

Last week the DOE released its petroleum supply monthly report, a lagging—yet highly detailed- breakdown of America’s supply disposition. Thus, the report only covers data up to January 2010, but provides a closer look at our trading partners.

In January, the United States imported 325.08 MMbbls of crude oil and petroleum products, a 7.14% month-on-month increase and its highest point since September 2009. Meanwhile, the deficit to the 2004-08 timestep, though large, has contracted from 19.1% in December to 15.0% in January.

Our relationship with OPEC also appears to be weakening in the long term—OPEC accounted for 47.3% of total imports in January 2008, 43.1% in January 2009, but only 40.1% in 2010. Our largest trading partner remains Canada of course, with 80.4 MMbbls of imports per month, with Mexico coming in a distant second with 35.0 MMbbls and Nigeria third at 31.4 MMbbls. In comparison, Saudi Arabia accounts for 29.9 MMbbls or 8.6% of total crude and product imports.

On the break-down, we have seen an increased reliance on product imports, as shown in the Chart of The Day in today’s issue of The Schork Report. The proportion of products imported against total imports has spiked from 21.0% in August to 24.8% in January. This is seasonally expected and should be encouraging as an indicator that demand is returning to the market. Unfortunately, it also has some less positive consequences.

Total product imports in January 2010 remain well below historic levels—16.2% below last year and 16.6% below the 2004-08 timestep. Is demand recovering fast enough?

What’s more, is the origin of our product imports changing?

Analysts have been cheering our decreased dependence on countries like Venezuela, with its unstable (to be, uh hum… polite) leadership and its impeccable anti U.S. CV. The proportion of imports from Venezuela has dropped to its lowest level since 1993 (not including the strikes of January 2003) and they make up just 3.0% of total products imported.

But the alternative may not be much better. The proportion of imports from Russia has risen from 0.01% in January 2000, to 11.7% in 2010. This sea change is very likely to lead to increased costs at the pump –storage and transportation from Russia is considerably more expensive than from neighbors like Venezuela.

What’s more, the Russia-Ukraine/Russia-Belarus disputes have shown that Russia is willing to cut off its natural gas/crude oil exports as a bargaining chip to negotiate payment. While a similar situation with the United States is unlikely, an unstable (read: power-hungry) leadership with a secretly antagonistic agenda is never the perfect trading partner.

All opinionated ideology aside, when the supply of cheap imports decreases, and expensive imports increases, what happens at the pump?

The bottom line is that domestic refiners cannot make money with the high cost of crude oil, as we have seen over and over again with refinery shutdowns and capacity utilization well below historical levels. Thus in the short term, with increased expensive imports, analysts at The Schork Report surmise that $3.00 barrier at the gas pump to be a foregone conclusion in the U.S, whereas prices in the U.K. are approaching $5.50 a gallon (£119.9p/litre).

President Obama’s off-shore drilling plans are meant to reduce imports in the long-run… In the short-run, we will become reliant upon Putin and Co.; therefore, make sure you bring a pound of $20s to your local gas station this summer. Because that is what it will likely cost you to fill up for your summer holiday.

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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.