Crude Oil Storage Report - Nov 16

[dan_s]

CRUDE OIL INVENTORY'000 bbls (Week Ended 11/11/16)

Current: 490,284
Actual Build/(Withdrawal): 5,274
Economist Average Estimate: 678
Previous: 485,010

Builds over the last three weeks have been primarily the result of more imports. Today's build, although above expectations, has not had much impact on oil prices because all eyes and ears are on OPEC.

As OPEC’s November 30 meeting in Vienna draws closer, the outlook for a production cut agreement is mixed. Sentiment was positive yesterday with WTI rising 5.2% to above $45 after falling 4% in previous trading sessions.

A positive report from Bloomberg yesterday triggered a wave of short covering, helped by news of an attack on the Nembe Creek Trunk Line oil pipeline in Nigeria. While Qatar, Algeria, and Venezuela are pushing a last ditch effort to finalize a deal, Saudi Arabia, Iraq, and Iran remain at loggerheads over how to share output cuts.

Reuters quoted a positive Commerzbank note saying “There is doubtless considerable pressure to take action, as the oversupply will not reduce itself.”

EnerCom’s oil model is currently predicting that a 1 MMBOPD cut in OPEC production would result in a $3 increase in oil price, all else equal. At current levels, that would push oil into the upper $40s. Of course, an agreement followed up with actual production declines would also boost market sentiment a lot.

Supply is only part of the picture and markets have responded much more favorably to demand increases in recent years. The ideal scenario would be a supply cut coinciding with a demand increase from developing nations such as China or India. IEA is now forecasting that global demand will increase 1.2 MMBOPD in 2017.

At current prices, a supply decrease and demand increase of 1 MMBOPD would easily push fundamentals into the mid-$50 range, all else equal.