RJ's take on Aug 14 EIA Petroleum Report

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dan_s
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RJ's take on Aug 14 EIA Petroleum Report

Post by dan_s »

Raymond James' comments below.

This week's petroleum inventories update was mixed relative to consensus. "Big Three" petroleum inventories (crude, gasoline, distillates – including SPR) fell by 1.8 MMBbls, versus consensus estimates calling for a draw of 0.4 MMBbls. Turning to crude, total inventories (including SPR) rose by 1.6 MMBbls, versus consensus calling for a draw of 2.5 MMBbls and a normal seasonal draw of 1.0 MMBbls. Refinery utilization decreased to 94.8% from 96.4% last week. Total petroleum product demand inreased 2.8% after last week’s 0.9% increase. On a four-week moving average basis, there is a 2.2% y/y increase in total demand.

Following a strong start to the year, oil prices pulled back in early summer, amid concerns about increased U.S. inventories and global oil demand, before regaining ground in late June and early July. However, prices again weakened over the past few weeks, amid the rising U.S. dollar and generally negative macro sentiment arising from the U.S.-China trade war.

Fundamentally, we see a broadly supportive backdrop for oil prices: the larger U.S. producers are exhibiting restraint in capital allocation; OPEC+Russia’s production cuts – in place through March 2020 – are noticeably contributing to inventory draws; U.S. sanctions against Iran continue to be impactful; and IMO 2020 is looming five months from now.

The 12-month futures strip ($52.93/Bbl for WTI and $57.79/Bbl for Brent) shows modest backwardation for both Brent and WTI; for comparison, our recently updated 2019 forecast is $62.50 WTI/$71.00 Brent and the 2020 forecast is $92.50 WTI/$100 Brent. There remain several key question marks, such as: 1) on the bullish side, the possibility of supply disruptions above and beyond the current ones, most notably the possibility of military escalation vis-à-vis Iran, and 2) on the bearish side, increasingly visible indications of global macro slowdown and resulting read-through for oil demand.
Dan Steffens
Energy Prospectus Group
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