"We believe the market is missing the fact that U.S. crude storage levels are now driven by the need for more storage to handle the movement of rising U.S. crude production to the end users. Since U.S. oil production has nearly doubled over the past six years, the “normal” amount of oil in storage should have increased proportionally." - Raymond James
Read: https://raymondjames.bluematrix.com/doc ... 505037.pdf
I will be discussing this in my opening remarks at Wednesday's Hess Club luncheon.
Instead of looking at the total amount of oil in inventory, investors should be looking at the numbers of days of supply. As of July 14th the U.S. only had 28.7 days of crude oil supply in inventory. The average is ~30 days of supply.
Crude Oil Storage Levels
Crude Oil Storage Levels
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Crude Oil Storage Levels
As I tried to explain at Wednesday's luncheon in Houston, I believe crude oil in storage is very close to the "proper level" for a country with our level of oil production and our rising demand (including export demand) for refined products. Here is more on this topic.
"While market is fixated on absolute crude inventories (and days of consumption), days of production remains in the
driver’s seat. Unfortunately, today’s U.S. crude inventory landscape remains both one of the most high profile topics, as well as one
of the most misunderstood topics within the realm of the crude markets. With U.S. production nearly doubling over the past six years,
the amount of pipelines and storage tanks needed to facilitate the movement of that oil to the end markets has also skyrocketed
(since this pipeline fill and associated tank storage at the end of the pipe is included in oil inventories). Given the fact that today, U.S.
crude inventories are driven more so by “days of production” than “days of demand,” it only makes sense that U.S. inventories are
posting record highs (and should continue to do so longer-term). While most market participants would paint a very bleak picture at
the moment – likely suggesting that U.S. inventories are at least more than 120 million bbls higher than historical averages (~510
million bbls vs. the 5 and 10-year averages of ~350 million bbls and ~390 million bbls, respectively), we would counter with the notion
that the true “excess” inventory figure is actually much more modest (closer to ~40-45 million bbls). Reaching this level of inventory
in the near future is much more easily achievable than working down ~120-160 million bbls of excess inventories. Based on our oil
model, we see U.S commercial inventories falling below the “right normal” level of ~465-470 million barrels in the next 3-6 months.
We anticipate this should mark a strong inflection point for the crude market and drive oil prices and energy stocks higher."
- Raymond James Energy Industry Brief June 26, 2017
Based on today's EIA report, U.S. crude oil inventories were 483,415,000 on July 21, 2017 and they are falling fast.
"While market is fixated on absolute crude inventories (and days of consumption), days of production remains in the
driver’s seat. Unfortunately, today’s U.S. crude inventory landscape remains both one of the most high profile topics, as well as one
of the most misunderstood topics within the realm of the crude markets. With U.S. production nearly doubling over the past six years,
the amount of pipelines and storage tanks needed to facilitate the movement of that oil to the end markets has also skyrocketed
(since this pipeline fill and associated tank storage at the end of the pipe is included in oil inventories). Given the fact that today, U.S.
crude inventories are driven more so by “days of production” than “days of demand,” it only makes sense that U.S. inventories are
posting record highs (and should continue to do so longer-term). While most market participants would paint a very bleak picture at
the moment – likely suggesting that U.S. inventories are at least more than 120 million bbls higher than historical averages (~510
million bbls vs. the 5 and 10-year averages of ~350 million bbls and ~390 million bbls, respectively), we would counter with the notion
that the true “excess” inventory figure is actually much more modest (closer to ~40-45 million bbls). Reaching this level of inventory
in the near future is much more easily achievable than working down ~120-160 million bbls of excess inventories. Based on our oil
model, we see U.S commercial inventories falling below the “right normal” level of ~465-470 million barrels in the next 3-6 months.
We anticipate this should mark a strong inflection point for the crude market and drive oil prices and energy stocks higher."
- Raymond James Energy Industry Brief June 26, 2017
Based on today's EIA report, U.S. crude oil inventories were 483,415,000 on July 21, 2017 and they are falling fast.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group