Energy Prospectus

Each week API and EIA report their own estimates of crude oil and refined products in inventory. API reports first, on Tuesday after the markets close. EIA reports their estimates on Wednesday morning. Keep in mind that these are just estimates based on each organizations formulas.

After the markets closed on September 19th API reported a build of 1.44 million barrels of crude oil for the week ending Sept. 15 vs. last week's build of 6.18 million barrels.
API estimates that gasoline inventories declined by 5.06 million barrels, and distillates showed a draw of 6.13 million barrels.

Crude oil inventories have been building for the last three weeks because hurricane Harvey took more than 30% of U.S. refining capacity offline. More than 10% is still offline.

This is a very bullish report because refined product inventories will need to be rebuilt and demand for crude oil will stay high through year-end. Demand for crude oil usually softens a bit after the Labor Day weekend, but that will not be the case this year. When the refineries are all back online we should see big weekly draws from crude oil storage.

I have been saying for several months in my podcasts that at some point we will not be able to drill enough new shale wells to offset the decline of existing wells. The math just does not work. Production from horizontal shale wells declines by 30% to 70% the first year. Second year decline rates are 20% to 50%. Wells completed in the Tier One areas with modern completion methods (i.e. a lot of sand and a lot of frac stages) do hold up better. In my opinion, it will be quite awhile before we see U.S. oil production over 10 million barrels per day. Especially, if oil stays around $50/bbl.

Watch this video: https://www.raymondjames.com/corporatio ... -july-2017

Raymond James has been criticized for being high on their oil price forecasts, but I think their fundamental logic is right on. I think we will see a massive drawdown of U.S. crude oil inventories when all of the refineries ramp back up. Raymond James thinks WTI goes to $65/bbl by year-end. If so, our Sweet 16 stock will be a lot higher.

OPEC considering longer cuts.
Iraq’s oil minister hinted that OPEC might consider deeper and longer cuts, pushing the current output limits out through the end of 2018. Jabbar al-Luaibi said the group could take an additional 1 percent off of global supply, which would help to further rebalance the market. Still, he said there is “no firm decision yet.”