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A look at oil inventories

Marketplace Staff Aug 18, 2010
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A look at oil inventories

Marketplace Staff Aug 18, 2010
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TEXT OF STORY

Bill Radke: Let’s say good morning to our Wednesday regular, Richard DeKaser, president of Woodley Park Research. He’s with us live from Washington, D.C. Hello.

Richard DeKaser: Good morning.

Radke: This government report on oil inventories comes out in a few minutes. But the oil industry put up some numbers yesterday that suggest stockpiles are way up and I take it that was a surprise?

DeKaser: You know it was. Usually this time of year — after the summer has already played out — we start to see inventories being drawn down as distributors are working off the build up. Ahead of the driving season they’re starting to prepare for leaner demand over the winter months.

Radke: OK. And what do you think that extra supply will do first to gas prices and then, Richard, why does it matter beyond that?

DeKaser: Well the implication for gas prices is obviously downward. But the bigger implication really is that we have really huge stockpiles of petroleum product in America today and in economic terms it was accumulating those inventories — or importing tremendous amounts of petroleum during the second quarter — that most was responsible for the explosive growth in the U.S. trade deficit. But with stockpiles still abundant, and as yet no real threat to supplies, that shouldn’t continue. So we should really think about it as a temporary event and not something that persists throughout the year.

Radke: When that trade deficit came out, you and I were talking, “Wow, this is really going to shrink growth.” Maybe it wasn’t quite as bad as first looked.

DeKaser: Well, that’s right. It did. It subtracted about 2.5 percentage points from GDP growth during the second quarter — huge restraint on growth. But we shouldn’t see that going forward because, again, petroleum stockpiles are so high in the U.S. They’re not getting leaner. And they’re simply, in all likelihood, precautionary demand, people bringing in product worried about the BP Gulf spill and implications that might have…

Radke: OK.

DeKaser: OK.

Radke: Very good, Richard DeKaser, Woodley Park Research. We appreciate it.

DeKaser: My pleasure.

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