Schork Oil Outlook: Crude Gets A Bounce

… crude markets bounced despite a reported surge in supply, while products fell because of a reported surge in supply. Meantime, natty in New York drifted higher. After the market closed, GM announced it was planning to shutter its U.S. plants for up to 9 weeks. As such, industrial demand for energy remains deader than dead.

Highlights DOE Weekly Petroleum Status Report:

Overall crude oil supplies surged again last week. The bulk of which, 4.9 MMbbls, went into the Gulf Coast (PADD III). On the other hand, supplies in the East (PADD I) fell hard after weekly imports fell by one fourth. Overall stocks of commercial crude oil topped the 370 MMbbl threshold for the first time since September 1990. In fact, supplies are within 5.4 percent of the all-time high.

We even saw an increase at the NYMEX delivery hub in Cushing, OK (PADD II). It was only the second increase here since stocks hit a record 34.9 MMbbls back in early February. It was also the first increase since news began to break in March that the Oklahoma Attorney General’s offices had opened an inquiry regarding alleged dumping of oil into the NYMEX hub by Canadian producers.

OKLAHOMA CITY (AP) Mar 04 - “Attorney General Edmondson last week met with a group of Oklahoma oilmen to discuss the Canadian oil situation,” said Charlie Price, a spokesman for Edmondson. “The information was given to our antitrust attorney for his review.”

Well, one of those Oklahoma oilmen responded to our quips in The Schork Reportfrom last week:

You’re an ignorant SOB!! I’m going to be one to fight this “dumping” issue hands over fist if that’s what it takes. Our crude prices are way to low...the general public has no idea what it takes to produce, let alone drill for oil and’re clueless do not tell me (us) that we have a frivolous objection over the Canadian “dumping” issue. In fact, I hope crude prices go to $100/bbl...It would be about time!!! I’ve put up with your kind way too long and I’ve had it Schork!

This begs the question… exactly what “kind” are we? Anyway, we have no doubt that we struck a chord with our friend. After all, he thinks we are ignorant SOBs… with two exclamation points no less!! Apparently he did not like our following remark:

What is next…? New York’s A.G., Andrew Cuomo suing OPEC for supplying too much oil into New York Harbor?

Of course, that tongue-in-cheek quip was based on Representative John Conyers’ (D MI) pathetically stupid HR 2264 (NOPEC Act of 2007). That bill’s objective was to amend the Sherman Act to make OPEC illegal in the eyes of U.S. law. That would then allow the Department of Justice to sue OPEC over prices.

Thus, our Cuomo crack was based on reality. That is what you get when you elect lawyers to run the government and that is why the United States is probably the most litigious society on the face of the planet. However, the point is, the Oklahoma AG’s inquiry is frivolous. We doubt there is anything illegal going on here. After all, the NYMEX forward curve is paying you well to store (i.e. dump) barrels into Cushing. As such, Canadian producers are responding accordingly.

Furthermore, there is no reason – aside from being sued by Edmondson, Conyers et al – for Canadian producers to stop “dumping” oil into PADD II. For example, you could have gone off the Board on Tuesday long the NYMEX WTI contract at 46.51. Not a bad deal given that the May expired at 85 cents on the dollar compared with the October (6th month) and 77 cents on the dollar to the May 2010 contract.

Hey, we are not ignorant, but even if we were, we, as well as those evil Canadians, would still be able to recognize favorable storage economics.

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