Oil Price - Feb 22

[dan_s]

WTI crude oil prices settled higher after data showed US domestic oil supplies fell for the first time in four weeks as exports surged to record highs.

On the New York Mercantile Exchange WTI crude futures for March delivery rose 1.77% settle at $62.77 a barrel
On London\'s Intercontinental Exchange, Brent gained 1.35% to trade at $66.30 a barrel.

Inventories of U.S. crude fell by 1.616 million barrels for the week ended Feb. 9, confounding expectations for a rise of 2.355 million barrels.

Gasoline inventories rose by just 261,000 barrels, slightly below expectations for a build of 283,000 barrels
Supplies of distillate – the class of fuels that includes diesel and heating oil – fell by 2.422 million barrels, a steeper fall than the 1.460 million barrels forecast.

As I said in my last podcast, refiners cannot make distillates from ultra-light shale oil. This will get more coverage later this year.

The upbeat gasoline and distillate supplies data come despite refinery utilization under pressure as refiners remained in a period of maintenance. Lower refinery activity usually lowers demand for crude leading to a build in supplies. Some said, however, that the surprise draw in crude supplies was supported by added incentive to sell rather than store crude as current prices traded at premium to forward prices – a market structure known as backwardation.

Also supporting the larger draw in crude supplies was a rise in crude exports to above 2 million barrels a day, near an all-time high set in 2017, as the widening Brent-WTI price differential boosted foreign demand of American supplies.

EIA reported a 1,000 bbl per day decline in U.S. oil production, but U.S. production remained close to record levels at 10.27 million barrels a day.
The EIA recently estimated that domestic production will top 11 million barrels per day by year-end.
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MY TAKE:
1. As I have posted here many times, upstream companies push hard in Q4 to complete wells by year-end to (a) get them into their year-end Proved Reserve reports and (b) beat the harsh winter weather that comes primarily in January.
2. EIA's weekly numbers are based on math formulas that are heavily weighted to the recent trend. Therefore, the Q4 production surge may cause EIA to over-estimate future periods. Today's "draw" might actually be a "correction" of previous over-estimates.
3. In February and March is when we NEED to build up crude oil inventories because when refinery maintenance season ends in late March, the refiners will move up to more than 95% capacity and they will be drawing down a lot of crude oil. Last year, U.S. refinery throughputs increased by more than 2 MMBbbls per day from mid-February to mid-April. It happens each year.
4. The big drop in Cushing inventories should also draw some attention.
5. This all points to a MUCH TIGHTER global oil market in Q2 and Q3.
6. All previous oil price cycles over-shot the mark, causing supply shortages. Why does anyone think this one will be different?

Details of the EIA weekly report here: https://www.eia.gov/dnav/pet/pet_sum_sn ... _nus_w.htm

[dan_s]

This may shock you: https://www.eia.gov/dnav/pet/hist/LeafH ... K_MBBL&f=W

From Raymond James 2/22/2018:
This week's petroleum inventories update was bullish relative to consensus for inventory changes. ''Big Three'' petroleum inventories (crude - including SPR, gasoline, distillates) fell by 4.5 MMBbls, versus consensus estimates for a build of 3.1 MMBBls. Total crude inventories (including SPR draws) fell by 2.3 MMBbls, versus consensus calling for a build of 2.9 MMBbls - with commercial crude falling 1.6 MMBbls and the SPR down 0.7 MMBbls. Cushing crude inventories fell once again, this time by 2.7 MMBbls to a mere 30 MMBbls now in total storage at the hub, while Gulf Coast inventories rose again by 1.5 MMBbls. Gasoline inventories rose modestly (by 0.3 MMBbls) versus consensus at +1.4 MMBbls and the seasonal normal draw of 1.4 MMBbls.

Distillates fell by 2.4 MMBbls versus consensus calling for a draw of 1.2 MMBbls and a seasonally normal draw of 2.6 MMBbls. Total petroleum inventories were down 7.9 MMBbls.

As always, regardless of their week-to-week movements, U.S. inventories do not constitute a holistic picture of global (or even total OECD) inventories, but they represent the only ''real-time'' data source.

Refinery utilization fell to 88.1% from 89.8% last week driven largely by refiners commencing annual turnaround maintenance activity.

Total petroleum imports were 8.9 MMBbls per day, down from last week's 9.8 MMBbls per day. Total petroleum product demand increased 0.8% after last week's 2.7% decrease. On a four-week moving average basis, there is a 4.3% y/y increase in total demand. Lower 48 production is estimated at 9,762 MBbls per day, up 10 MBbls per day from last week, and 1,279 MBbls per day above year-ago levels. As always, weekly demand and supply figures are provisional estimates subject to frequent revisions.