Per Rigzone: Oil Market to Tighten in Q3

[dan_s]

As I have mentioned numerous times on this board, U.S. refineries need to ramp up to almost full capacity to keep up with demand for transportation fuels. Very low diesel inventories are the most concerning since any rationing of diesel could be a significant blow to the U.S. economy.

Read this: https://www.rigzone.com/news/increasing_refinery_runs_should_tighten_direct_crude_balances-02-jun-2023-172950-article/

That’s what analysts at Macquarie Bank Limited said in a report sent to Rigzone on Thursday, adding that they expect third quarter “tightness”.

“We are slightly bullish on direct crude balances as we expect an increase in refining runs of [around] 3.5 to 4.0 million barrels per day as units ramp post turnarounds, new kits increase throughput in the Middle East and China, and OPEC+ cuts begin,” the analysts stated in the report.

[SergioSays]

diesel inventories are low in the US but I've seen charts showing well above average ex US. I'm assuming any domestic shortage can be easily plugged by imports (especially given Saudi's arbitrage of Russia's diesel bbls).

[dan_s]

There is no quick fix for the diesel shortage.
> We were importing diesel from Russia prior to the war related sanctions.
> Refiners need heavy oil (black oil) to make diesel. You can't make it with the ultra-light shale oil.
> We need heavy oil from Canada or Venezuela.

[dan_s]

U.S. oil production likely to go lower.

Baker hughes rig count down 15 this week

Down 52 over past 4 weeks [largest since June 2020]

We now have 696 rigs running, down 31 y/y and 379 fewer than start of 2019 – pre Chinese virus

[dan_s]

Goehring & Rozencwajg
Natural Resource Market Commentary
May 31, 2023

"Conventional oil production has now unequivocally rolled over. Unconventional production, the only source of growth in global oil supply over the last 12 years, has also significantly slowed. The only growing non-OPEC basin is the Permian in West Texas. Never before has oil supply growth been so geographically concentrated. Six counties in West Texas are now 100% responsible for all global production growth.

Conventional non-OPEC oil production peaked in 2007 at 46.2 mm b/d and now stands at 44.2 mm b/d – 4% below its peak. Including OPEC, conventional global output peaked in 2016 at 84.5 mm b/d and now stands at 81.3 m b/d – 5% below its peak. Even if OPEC has its alleged 4 mm b/d of unused production capacity (something we do not believe), conventional production would barely regain its 2016 peak."

[dan_s]

More from G&R: This is why I think we will see oil pushing up to $100/barrel in six months.

"Consensus opinion believed global oil demand would peak in 2019 and gradually decline
through this decade. Just the opposite has occurred: demand has come roaring back
post-COVID. Global demand in 1Q23 surpassed 102 mm barrels per day -- three million
barrels above the 1Q19 (pre-COVID) level and almost 2 mm b/d above the International
Energy Agency’s (IEA) 1Q23 estimate. Strong demand and faltering supply led OECD
countries to release 250 mm barrels of oil from their strategic petroleum reserves to keep
prices from surging. Given the seasonality in demand and China’s ongoing reopening, the
4Q23 demand could surpass 104 mm b/d." < U.S. oil production is likely to go down over the next six months because we are not completing enough new wells to offset the high decline rate horizontal shale wells.

BTW: The IEA has been telling the world this for months.