It is not the average depth of a reef that gets you into trouble, and the same is true with oil supply. Oil has a long and complex supply chain. Inventories of about 290 million barrels of "inventory" or 21 days supply are required to avoid snags that cause supply outages.
Current unrest in the Mideast and higher food prices in Mexico create incredible risks to oil's long and fragile supply chain.
Each Wednesday the TWIP (This Week in Petroleum) is published by the Energy Information Administration. The publication is pretty good at collecting data and spectacular at misstating it. Following is a TWIP graph I modified from a July 2008 TWIP report for a Seeking Alpha article on the risks of gasoline outages across the Southeast. In September 2008, those outages hit. I added the red "Outages" on the bottom for this post. In 2008 the TWIP report stated that 275 million barrels of oil is about 20 days supply, today that is about 290 million barrels.
The EIA stating 290 million barrels of oil as equal to 20 days of inventory grossly misinforms the economic risks. Outages will occur slightly below the historical inventory levels identified by the blue band in their graphs.
There is good reason for investors to watch the weekly TWIP report and organize investments based on oil inventory levels as they approach 290 million barrels.
When supply shortfalls occur, my guess is that sectors that increase energy self-reliance will do best. Railroads, solar, wind and natural gas companies seem likely to benefit. Speculative, but mostly private companies that will benefit will be Personal Rapid Transit companies.
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