Energy Prospectus

The U.S. Energy Information Administration said in its weekly report that crude oil inventories rose by 5.022 million barrels in the week ended February 10. Market analysts' had expected a crude-stock build of 2.023 million barrels, though the American Petroleum Institute late Tuesday reported a build of just 1.156 million. < Maybe API and EIA need to compare notes and methods for their ESTIMATES.

Supplies at Cushing, Oklahoma, the key delivery point for Nymex crude, increased by 0.338 million barrels last week, the EIA said. Total U.S. crude oil inventories stood at 430.9 million barrels as of last week, according to press release, which the EIA considered to be “in the lower half of the average range for this time of year”.

However, the report also showed that gasoline inventories decreased by 6.271 million barrels, compared to expectations for a draw of 1.176 million barrels, while distillate stockpiles fell by 4.360 million barrels, compared to forecasts for a decline of 1.519 million.
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BIG DROPS in refined products is quite a surprise. We should see a rise in refinery utilization in the coming weeks. I expect it to move up to 95% within four weeks. Refiners know that there is a lot of demand for gasoline and diesel just ahead.

Just keep in mind that both EIA and API weekly numbers are just ESTIMATES based on formulas. They don't actually measure the tanks. The most recent "actuals" we have are for December.

Crude oil, gasoline, distillates, jet fuel and propane inventories are now ALL BELOW the 5-year average days of supply.

Investing.com – WTI crude oil prices settled higher as data showing a massive draw in gasoline supplies offset a build in crude stockpiles for the third-straight week.

On the New York Mercantile Exchange crude futures for April delivery rose 25 cents to settle at $60.96 a barrel, while on London's Intercontinental Exchange, Brent rose 0.11% to trade at $64.78 a barrel.

Per EIA estimates: Inventories of U.S. crude rose by 5.022 million barrels for the week ended March 9, well above expectations for a rise of 2.023 million barrels.

Gasoline inventories fell by 6.271 million barrels, confounding expectations for a decline of 1.176 million barrels, while supplies of distillate – the class of fuels that includes diesel and heating oil – fell by 4.36 million barrels, beating expectations for a decline of just 1.519 million barrels.

The large draw in product inventories helped offset a gloomy report on oil outlook after OPEC raised its estimate of non-OPEC production for 2018.

OPEC raised its growth forecast for non-OPEC production in 2018 by 280,000 barrels a day (bpd) to 1.66 million bpd this year, warning that non-OPEC supply growth, led by the U.S., will outstrip growth in global oil demand in 2018. That echoed the EIA’s report Monday, estimating output from major shale formations to rise by 131,000 bpd in April to an all-time high 6.95 million bpd.

In sign that the oil-cartel's production cuts could by waning, inventories across the most industrialized countries rose in January for the first time in eight months, according to OPEC's monthly report. < FYI oil inventories ALWAYS rise in Q1 because season demand is lowest in Q1 and refiners take the quarter to do much of their annual maintenance.

Goldman Sachs, however, remained bullish on oil prices as the investment bank's commodity research team said it expects global crude oil inventories to continue to decline. "Combined with our expectation for strong oil demand growth and high OPEC compliance, we reiterate our constructive forecast on oil prices with global inventories set to fall further below their 5-year average levels through 3Q18," Goldman Sachs said. < GS is forecasting a Brent price of $82/bbl by year-end

"Just keep in mind that both EIA and API weekly numbers are just ESTIMATES based on formulas. They don't actually measure the tanks. The most recent "actuals" we have are for December."

Dan, can you summarize the points in a calendar year when we get actuals...are they published by the EIA?

Is it on fixed dates - are the theoretical v actuals notoriously inaccurate ?

Also, there seems to be a big dislocation between the rising (spiking strongly) volume of oil being produced in the US v the rig count (as per the EIA weekly charts)...how is this possible?

Thanks

Yes, you can find the "actuals" on the EIA website: https://www.eia.gov/dnav/pet/pet_crd_cr ... mbbl_m.htm

The "actuals" are based on operators' report that are filed with the state agencies, like the Texas Railroad Commission. They do change slightly for about a year because the operators can file "amended reports", which they do for up to a year. My department at Hess Corp. was responsible for this. We filed amended reports every month because the initial reports always included some estimates.

The most recent actuals are for December because operators have 60 days to file their reports in many states.

Note that offshore production is included at the bottom of the link above.

From one of our VERY SMART members:

Here is a mental exercise worth doing

Go to page 9 of Pedriven's chart on Long-Term Energy below
https://www.investorvillage.com/uploads ... rch-18.pdf

and then look at the 2017 change in combined crude and product inventories from March to November 2017. We went from 940 million barrels of inventory in mid-March to about 790 million barrels in November. Since we are now at about 810 million barrels of inventory and we are going into the higher demand seasons within 2 weeks, we can expect a similar draw of 150 million barrels in 2018. That would bring November 2018 combined inventories down to about 660 million barrels. Now plot 660 million barrels on the chart. That would take us to below the 5-year range, NOT AVERAGE! That is a huge warning sign!

Wait, there is more. Don't forget that in those intervening 5 years, US shale infrastructure buildout required more pipelines and storage to handle the incremental flow. In addition, in those intervening 5 years, oil demand grew at least 5 million barrels/day. So, one needs to now go to Pedriven's days of supply charts here: https://www.investorvillage.com/uploads ... rch-18.pdf


One can see that the US is now below the 5 year average for days of supply for both crude and ALL products. That is the 2nd warning sign.

But wait, there's more!

Consider that we will likely lose another 150 million barrels of supply by November 2018 so that the days of supply may be off the charts.

I see a MASSIVE UPSIDE IN OIL PRICES!
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MY TAKE: This is why Goldman Sachs says Brent will trade at $82/bbl late this year.

In a normal world (not one where EIA and IEA keep telling everyone that we have a massive production surge coming), all U.S. liquids inventories below the 5-year average supply would send oil prices a lot higher.

Per EIA:
"As a result of the increases in crude oil production in onshore tight oil basins and declines in other areas, total U.S. crude oil, on average, became lighter, shown by an increase in API gravity. Crude oil production with an API gravity between 40.1 and 45.0 degrees grew by 281,000 b/d to more than 2.8 million b/d in 2017. Crude oil of this quality represented 32% of total U.S. Lower 48 states production in 2017, an increase from 28% in 2015, the earliest year for which EIA has oil production data by quality."

Our refineries are not currently configured to handle this much oil with API gravity over 40. They cannot make diesel out of oil this light.

Thanks, Dan, for a thought-provoking thread.

One part I did not entirely follow is this: "Since we are now at about 810 million barrels of inventory and we are going into the higher demand seasons within 2 weeks, we can expect a similar draw of 150 million barrels in 2018."

I realize that, as you note, from March-November 2017, we drew about 150 million barrels. How do you arrive at the conclusion that the draw will be about the same for March-November 2018? Is that a "best" case? Could the draw be substantially more, or less?

Are you simply inferring from the fact that in weeks 1-9 2018 we built almost nil (and far less than we built during that period in 2017), that it won't be possible during the balance of 2018 to improve on storage vs. 2017 build/draw (i.e., that net build/draw for the remainder of 2018 can be no better than 2017 net build/draw during the same period)?

If you are making that inference, wouldn't that assume that the factors that determined build/draw at various times in 2017 will be roughly the same, at at least in the aggregate net, in 2018? Can that be shown to be likely?

I.e., is there predictive data (analysts?) for 2018 vs. 2017 (production, which we know will be up vs. 2017; refinery inputs, which I assume will be higher; exports, which I assume will increase; imports decrease (?), etc.)? How are you quantifying all of these for 2018, individually or in the aggregate, relative to 2017?

Thanks.