Inventories of oil and refined products

[dan_s]

One of our new members is kind enough to send me a weekly report from BMO Capital Markets which takes a hard look at each EIA weekly report. Here are a few highlights:
> U.S. crude oil supply is barely above the 5-year average for days of supply (26.1 days), which BTW is lower than the target of 30 days of supply.
> U.S. gasoline inventories at 25.0 days of supply are slightly below the 5-year average.
> Jet Fuel at 24.4 days of supply is well below the 5-year average.
> Distillate inventors which include diesel are at 31.9 days of supply, which is well below the 5-year average (it builds heading into winter).

Today's report should have gotten a bullish reaction from oil traders. U.S. inventories which make up the largest chunk of OECD inventories are well within "normal" range. The global oil market is under-supplied by approximately a million barrels per day (my SWAG) as crude oil inventories keep falling at a time of year when they normally build.

EIA did report another increase in U.S. crude oil production, but we all know that is questionable at best. I do think the upstream companies are focused on getting a lot of DUC wells completed by year-end, so they can include them in their year-end "proven reserve report". The same thing happened at the end of 2016.

Regardless, Equities are nowhere near where they should be trading with WTI at $57 and Brent at $63. Remember, I am assuming $50 WTI for all future periods in all of my forecast/valuation models and the Sweet 16 (a darn good group of companies) is trading at more than 50% below my valuations. I sure don't think the multiples of CFPS that I'm using to value the companies are unreasonable. Keep in mind that the Sweet 16 were chosen because they have double digit annual production growth locked in.

What may be happening

I believe that "tax loss selling" is keeping a lid on energy sector stock prices. The energy sector is the only sector down this year, so fund managers are dumping their remaining energy stocks to offset gains in other sectors. Plus, the fund managers do not like to show energy stocks in their list of holdings at year-end. I worked for a hedge fund for two years (as a consultant) and I know this is a big deal. Hedge funds are partnerships. Hedge fund managers do not want to send out K-1s that show lots of taxable income.

Obviously, the equities are trading as if oil is still way below $50.

If I'm right, we should see a lot of money rotate into energy in January if the oil price holds up. I'm also "dreaming of a white Christmas" in Texas. Joe Bastardi kept my dream alive this morning. Thursday's gas storage report should be interesting.