Preview of Wednesday's oil storage report - Nov 5

[dan_s]

Notes below are from HFI Research with my comments in blue.
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For the week ending Nov 1, we have a crude build of 2.81 million bbls. This includes the SPR build of 1.4 million bbls. < Keep in mind that this is the time of year that crude oil inventories must build, so refineries have enough feed stock to make the transportation fuels needed during the next spring and summer. Farmers burn a lot of diesel during each spring's planting season.

This week's build will be in-line with the 5-year average build of 3.745 million bbls.

Looking at US commercial crude storage so far, the build has not been meaningful.

In fact, if the EIA confirms our crude build this week, US commercial crude storage will reach a five-year low for this time of the year.

While it's early to make this call, if we don't hit ~440 million bbls by the end of November, then we may finish at ~410 million bbls or lower by year-end.

So why aren't oil prices reacting to this?

It's quite simple. Traders believe that the surplus we are going to see in Q1 2025 will result in crude storage to build back quickly. As a result, any bullishness today will be washed away by the bearish builds in 2025.

This, however, is dependent on 1) OPEC+ bringing back production and 2) China's oil demand remaining weak.

In addition, WTI timespreads suggest that Q1 balances may not be all that bearish. However, it is important to note that it's not bullish either.

In order for crude to sustainably move higher, we will need to see 1) product storage move lower and 2) refining margins to move higher.
And I think we are starting to see both.

In conclusion, I think oil market fundamentals are moving in the right direction, which should support a move higher in crude.

I think if EIA report shows 1) strong demand, 2) low crude build, and 3) product draw, we should see WTI reach $75 fairly quickly. < As discussed in yesterday's newsletter, I believe the "Right Price" for WTI will be within a range of $75 to $85 for 2025. Today, my forecasts and stock valuations are based on WTI averaging $70/bbl in Q4 2024 and $75/bbl in 2025.

API vs EIA

API vs EIA running error is at 10 million bbls now. This means that API will be more bearish than EIA for crude.

For our estimate to be correct, API would report a crude build of 4 to 6 million bbls.