Fundamental Stats -

In five short months, crude oil went from record highs with serious concerns about a lack of future production to the lowest spot prices in over three years. On October 24, 2008, OPEC announced a production cut of 1.5 million barrels per day and on December 17, 2008, another cut of 2.2 million barrels per day. The actual reduction may be another story. Unfortunately, traders that tried to keep up on the fundamentals of crude oil never saw the price drop coming as the tsunami of selling hit from Wall Street's financial panic and new concerns about a possible deflation. If nothing else, this has been another good lesson for why you don't want to make trades based on market opinion, especially if that opinion is focused only on the commodity itself.

Fundamentally, the key statistic in the crude oil market is world surplus production capacity and that was only 2.1 million barrels per day (mbd) in 2007 - most of it in Saudi Arabia. On November 12, 2008, the U.S. Energy Department said that surplus capacity was 2.5 million barrels per day in November - still slim. Even though crude oil prices have fallen lately, the politics of the Middle East remain tense. Roughly 20% of the world's oil flows through the Strait of Hormuz and Iran has the ability to block the channel.

On December 9, 2008, the DOE estimated OPEC's actual production at 31.5 mbd in November with 2.4 mbd coming from Iraq. That was down from 32.2 mbd in October. The DOE also estimated that 2009 world consumption will be down 450,000 mbd to 85.3 mbd, just beyond production of 85.1 mbd. West Texas crude prices are expected to average $100.40 in 2008, but only $51.17 in 2009. As of December 26th, U.S. crude stocks were up 10% from a year ago.

"In terms of non-Opec [countries outside the big oil producers' cartel]," he (Fatih Birol, chief economist of the International Energy Agency) replied, "we are expecting that in three, four years' time the production of conventional oil will come to a plateau, and start to decline. In terms of the global picture, assuming that Opec will invest in a timely manner, global conventional oil can still continue, but we still expect that it will come around 2020 to a plateau as well, which is, of course, not good news from a global-oil-supply point of view." Guardian.co.uk. December 15, 2008.

Inventory data from the U.S. Department of Energy (in millions of barrels):
For the week ending:	December 26, 2008	Week ago	Year ago
Crude oil	318.7	318.2	288.7
Motor Gasoline	208.1	207.3	215.5
Total Distillates	136.0	135.3	134.1
High-Sulfur Distillates	41.2	41.2	41.0
Strategic Petro. Reserve	701.8	701.8	696.7

Fundamental Stats -

The good news is that gasoline prices have come down. The bad news is that it took a worldwide financial crisis to do it. Unleaded gasoline supplies are down 3% from a year ago and demand over the past four weeks was down 2.2% from a year ago. As of December 26th, the nation's refinery activity fell from 84.7% to 82.5% of capacity. On December 9, 2008, the DOE predicted that retail regular gasoline will average $3.27 per gallon in 2008 and $2.03 in 2009.

Fundamental Stats -

The northeastern U.S. got away with a relatively mild winter last year, but will it again? Distillate supplies are up 1% from a year ago and demand for all distillates over the past four weeks was down 3.3% from a year ago. As of December 26th, heating oil supplies were up slightly from a year ago. On December 9, 2008, the DOE estimated that wholesale heating oil prices will average $2.74 in 2008 and $1.65 in 2009.

Fundamental Stats -

Natural gas prices trended higher in the first half of 2008 with concerns that future rates of production would not keep up with demand. As the saying goes, high prices cure high prices and sure enough, producers found new technologies that allowed them to increase gas production in North America by more than the experts expected.

As of December 26th, the DOE said that underground storage levels were down 2% from a year ago, but up 2% from the five-year average. On December 9, 2008, the DOE estimated that new supplies of U.S. natural gas will be down slightly in 2009 to 63.68 billion cubic feet (bcf) per day (including imports). That should cover the estimated demand of 63.33 bcf. The DOE expects the Henry Hub spot price to average $9.17 in 2008 and $6.25 in 2009.

Which U.S. regions are the biggest consumers of natural gas? Number one is the West South Central Division, consisting of Arkansas, Louisiana, Oklahoma, and Texas. A close second is the East North Central Division, consisting of Illinois, Indiana, Michigan, Ohio, and Wisconsin. A distant third is the Pacific division, consisting of Alaska, California, Hawaii, Oregon, and Washington.

Inventory data from the U.S. Energy Information Administration (in trillion cubic feet):
For the week ending:	December 19, 2008	Week ago	Year ago
Natural Gas	2.877	3.020	2.946