Surging Precious Metals Prices & U.S. Energy Inventories… One Is Good, The Other Isn’t

As the precious metals prices surged this year, so did U.S. petroleum inventories.  While rising gold and silver prices are a positive sign for the precious metals industry, the surging U.S. petroleum stocks are extremely negative.  However, the prices of the metals and energy are currently not trading based on the fundamental values.

For example, the price of oil continues to rally on the back of rising U.S. and world petroleum stocks.  This is especially true in the United States.  Not only are total U.S. Gasoline stocks higher this May compared to the same period last year, they are up considerably over the past decade:

U.S-Gasoline-Blending-Stocks-May-2016

Total U.S. Gasoline (Blending) stocks hit a record high for the month of May, reaching 219 million barrels.  Last year, total U.S. Gasoline stocks were 196 million barrels… 23 million barrels less.  Now, if we go back to May 2000, total U.S. Gasoline stocks were five times less at 45 million barrels.

Of course, some folks would quickly reply that this is due to Americans driving more and consuming more gasoline.  Well, that would be correct if it were true.  Unfortunately, it isn’t.  I went to the EIA – U.S. Energy Information Agency and looked at total U.S. Transportation Energy consumption going back until 1950.   The chart below only provides data since 2000.  However, we can see a troubling sign here:

Total-U.S.-Transportation-Energy-Consumption

The U.S. Transportation fuel consumption is shown as Quadrillion BTU’s.  That’s a lot of energy.  For example, total U.S. energy consumption in 2015 was 97.5 Quad BTU’s.  The Petroleum percentage of U.S. Transportation consumption of 25.4 Quad BTU’s represented 26% of total energy consumption by the country.

Regardless, as we can see from the chart above, total U.S. transportation energy consumption was actually higher in 2000 (25.7 Quad BTU’s) than it was in 2015 (25.4 Quad BTU’s).  Furthermore, we can see that U.S. Transportation energy consumption peaked in 2006 & 2007 at 27.5 Quad BTU’s.  Ever since the 2008 U.S. Investment Banking and Housing Market collapse, total transportation consumption has never surpassed its previous peak.

So, the important question needs to be asked… why are U.S. petroleum gasoline stocks continuing to rise to record levels???  Is it because the U.S. Energy Industry wants to make sure that Americans have plenty of extra fuel in storage if there is some BLACK SWAN EVENT?  I hardly doubt it.  These companies survive on making profits, not being altruistic.

Correct… it’s due to falling demand.

Again, total U.S. Gasoline stocks are 23 million barrels higher in May than they were during the same month last year.  Moreover, the situation is even worse in the East Coast (PADD 1).  Let’s look at the disaster taking place in the East Coast Gasoline inventories:

East-Coast-Gasoline-Stocks-May-2016

East Coast Gasoline stocks hit a new record for the month of May by surpassing 65 million barrels.  This is up nearly 10 million barrels from the same month last year.  While total U.S. Gasoline stocks are up 12% from last year, East Coast Gasoline stocks are up a whopping 17%.

In addition, East Coast Gasoline stocks are nine times higher than they were in 2000 (7.2 million barrels).  This is almost double the rate for the entire country that experienced a five time increase (2000 = 45 million barrels/ 2016 = 219 million barrels) since 2000.  This is why the price of gasoline is so much lower in the North East than it used to be in the past… and compared to many other regions of the country.

Do people actually think the price of oil will continue to rise as U.S. and Global petroleum stocks continue to increase???   I also listened to an interview where the analyst was explaining that the huge glut of gasoline stocks in the United States has forced refiners to switch to their “Winter Blend” several weeks early.  The thinking by the refineries here is that the “Spring-Summer Blend” stocks of gasoline will start to decline as they switch to the winter blend.  However, this is only a short term solution.  The analyst in this interview warned, “What the hell is going to happen if gasoline consumption continues to weaken heading into the fall and winter?”

This will just make a bad situation even worse.

I will continue to put out updates on the U.S. petroleum stocks.  I beleive they will continue to rise, especially in the fall and winter months.  At some point, the fundamentals will kick in and we will see much lower oil and gasoline prices.

Unfortunately, this will be extremely BAD NEWS for the U.S. Energy Industry.  Their balance sheets are already in lousy shape this year.  If energy prices continue to decline, we are going to see serious problems in the U.S. Energy Sector.

As Energy Prices Continue To Decline, Watch The Opposite Take Place In The Precious Metals

I believe we are just beginning to see the epic move in the price (value) of the precious metals.  As I stated in my article, THE COMING BREAKDOWN IN THE U.S. & GLOBAL MARKETS: What Most Analysts Miss, Stocks, Bonds and Real Estate values will plummet as U.S. and Global Oil production heads south due to the “Thermodynamic Collapse” of net energy.

Thus, the best assets to protect wealth in the future will be in physical gold and silver.  I will be writing about this in more detail in future articles.

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14 Comments on "Surging Precious Metals Prices & U.S. Energy Inventories… One Is Good, The Other Isn’t"

  1. Oil glut –> gasoline glut. Next: WTI to $23,- and full retard monetizing of fracking debt. Monetise energy surplus? ‘Cheap’ energy surplus?

    • And don’t give me the crap they won’t do it because is doesn’t work. I know that.

    • houtskool,

      Your forecast of $23 oil may be a pretty damn good call. Zerohedge posted an article today stating that the Mexican oil traders are HEDGING THE HELL out of oil. Looks like they see the bottom falling out in 2017.

      I continue to find it so surprising how the precious metals community JUST WON’T LOOK AT ENERGY to save their LIVES.. LOL. It’s like taking some real nasty medicine.

      steve

      • Steve, what’s your take about monetizing energy? Fracking to start with, and further down the drain. There’s no more room to add debt. Not in .gov., not in household consumption. Like Zerohedge showed many times, finance is dead in the water.

        Through finance though, we can see where we are heading. Finance is the indicator of greed, the steering wheel. It should be watched carefully, to have an indication about the time frame of ‘things’ happening.

        The time frame is the most interesting part. After that, we can justify the precious metals idiocy.

  2. Thanks for the article, Steve. I especially appreciate the Total US Transport Energy Consumption chart. A colleague of mine has claimed that digital technology & Web 2.0 has been a key driver for falling demand for fuel as people – esp. young people – are more content to stay at home because they can travel/interact virtually now. But, his hypothesis isn’t really supported by the data; it seems pretty clear that demand falls when prices rise (or during the GFC) and demand rises when prices fall, just as we would expect.

    • HughK,

      I was also quite surprised by the data when I started looking at it, especially the long-term trend. While gasoline consumption has increased or decreased due to price, this time around we are seeing something quite different. China is now exporting petroleum products in a BIG WAY. They haven’t done that before. Hell, they were importing and consuming as much as they could up until recently.

      It seems as if something really changed this year. And we are seeing it in the massive increases in petroleum inventories worldwide. I really think we are going to see much weaker demand in the Fall & Winter in the United States, and this will make a bad situation worse.

      I wouldn’t be surprised to see $0.99 a gallon gasoline once again.

      steve

  3. Silver is sold out ! | August 12, 2016 at 6:15 pm |

    Shanghai Silver Index 13.08.2016

    4298

    Das ist ein Unzenpreis für Silber von 20,15 $ ! :-~

    Und was zeigt euer Chart für ein Bullshit an ?
    Angeblich den BIS Bullshit von Preisvergewaltigung nach Handelsschluss.
    Das ist der alltägliche Bullshit, in dem ihr eure Kinder reinsetzt ! :-~
    Das ist eure Welt !
    Ich weiss zwar nicht welche Zukunft, aber es fängt mit dem Ende dieser Lügen an ! :-~
    Bis dann habt ihr es nur mit Geisteskranke zu tun ! :-~

    European Close Sparks $5 Billion Selling-Panic In Gold Futures

    Someonce decided to wait until Europe closed to dump $5 billion of notional gold into the markets (36k contracts)… makes perfect sense…

    22,000 contracts in 10 minutes…

    BIS Intervenes In The Gold Market To Aid Battered Gold Shorts!

    Well, some price capping in the gold market has been quite apparent in the last couple of trading sessions, but today it was reported that $5 billion of panicked paper gold futures selling occurred right after the physical market closed in London. But what really happened? Was it really panic or something else?

    Gold has already surged more than 25 percent in 2016, and investment demand has been soaring, as sales of gold coins from the U.S. Mint have now soared a jaw-dropping 84 percent. In fact, investment demand for gold has now surpassed jewelry demand for the first time in history.

    Tja, dann haben sie sich mit der Preisdrückung kein Gefallen getan. :-~
    Wessen Geld druckt die BIS eigentlich, denn sonst müsste man sich fragen, wessen Geld sie für solche geisteskranke Aktionen verbraucht ? :-~
    Welches Zahlungsausgleich hat sie denn gerade getätigt ?
    Das ist Verzerrung der Marktpreise !
    Hat sie überhaupt ein Auftrag, oder Erlaubnis dafür ?
    Wenn ja, für wen hat sie Partei ergriffen und somit, in wessen Tasche hat sie das Geld gesteckt ?
    Das ist ja unerhört !
    Es ist aber auch ziemlich genau die Geldsumme, die man braucht, um die ganze verfügbare Menge an physischem Silber aufzukaufen, die im Jahr verfügbar bleibt. :-~
    Einfach so, in 10 Minuten ! :-/ 😮 ^o-)
    Hier haben sie gerade mal den Preissprung wieder rückgängig gemacht, an einem Tag.
    Ohne Gegenpartei für den Handel ! :-~

    Kauft Silber Leute !
    Tauscht euer Gold in Silber um !
    Dann braucht ihr bei solchen Geisteskrankheiten nicht mitmachen !

    Nächste Woche ist England pleite.

  4. What about coal? How does that factor into the energy picture?

  5. OutLookingIn | August 13, 2016 at 10:35 am |

    Steve – Did you forget about gasoline exports?

    U.S. Exports of Finished Motor Gasoline
    From the U.S. E.I.A. Data (most recent)

    The US exported 12,561 barrels in April 1945 – from then until July 2009 gasoline exports from the US during the intervening 64 years averaged about 4,800 barrels. This changed in July 2009 when oil exports were allowed once again and the US exported 7,616 barrels of gasoline.

    Dec. 2010 – 12,022
    Dec. 2011 – 19,103
    Dec. 2012 – 18,299
    Dec. 2013 – 18,695
    Dec. 2014 – 20,497
    Feb. 2016 – 20,939

    The trend is clear. Finished motor gasoline exports reflect the growing over supply. These export sales provide the energy sector with badly needed revenue. Which also alleviates the tight storage capacity. Unfortunately, they also keep gasoline prices elevated.

    • Outlookingin,

      No, I did not forget to consider this data. Even though U.S. gasoline exports have picked up over the past 6-7 years, you will notice that they are about the same level (20+ million barrels) for 2014-2016.

      However, total gasoline inventories are up 23 million barrels in a year. I have new data that will show its even higher in August… and these inventories are supposed to decline during the vacation driving summer months.

      Steve

  6. Thanks for all your work Steve. I never comment, but always read your content and just wanted to show my gratitude for all the work you do.

    It’s amazing how most people don’t understand the concepts of EROI. It’s also amazing how people blindly believe that alternative energy sources will magically save us – forgetting the importance of cheap potable energy, and unaware as well of the impossibility of procuring the required infrastructure.

    Regards

  7. “Do people actually think the price of oil will continue to rise as U.S. and Global petroleum stocks continue to increase?”

    in a market economy, no way. in a command economy, sure, absolutely.

    • heh. “Do people actually think the price of GLD/SLV will not rise as availability continues to decrease?”

      in a market economy, no way. in a command economy, sure, absolutely.

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