Energy Prospectus

Summary of Weekly Petroleum Data for the week ending June 29, 2018

U.S. crude oil refinery inputs averaged 17.7 million barrels per day during the week ending June 29, 2018, which was 163,000 barrels per day less than the previous week’s average. Refineries operated at 97.1% of their operable capacity last week. Gasoline production increased last week, averaging 10.3 million barrels per day. Distillate fuel production increased last week, averaging 5.5 million barrels per day.

U.S. crude oil imports averaged 9.1 million barrels per day last week, up by 699,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 8.4 million barrels per day, 6.6% more than the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 648,000 barrels per day, and distillate fuel imports averaged 92,000 barrels per day.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.2 million barrels from the previous week. At 417.9 million barrels, U.S. crude oil inventories are about 2% below the five year average for this time of year.

Total motor gasoline inventories decreased by 1.5 million barrels last week and are about 6% above the five year range. Finished gasoline and blending components inventories both decreased last week. Distillate fuel inventories increased by 0.1 million barrels last week and are about 13% below the five year average for this time of year. Propane/propylene inventories increased by 2.9 million barrels last week and are about 10% below the five year average for this time of year. Total commercial petroleum inventories increased by 3.3 million barrels last week.

Total products supplied over the last four-week period averaged 20.9 million barrels per day, up by 1.4% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 9.7 million barrels per day, up by 1.2% from the same period last year. Distillate fuel product supplied averaged 4.0 million barrels per day over the past four weeks, down by 3.5% from the same period last year. Jet fuel product supplied was down 5.3% compared with the same four-week period last year.
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Some significant differences above from what API reported on Tuesday after the markets closed. We haven't seen crude oil imports this high in quite sometime. There are always tankers sitting offshore waiting to unload oil. Therefore, during a week of calm weather in the Gulf of Mexico we can see a spike in imports.

Digging into the details of the EIA's weekly report. < Always keep in mind that EIA's weekly report is only their Wild Ass Guess ("WAG")

1. Unexpected build of 1.2 million barrels in the crude oil inventory was caused by a big jump in imports (4.9 million barrels higher than the previous week) and slightly lower refinery inputs than the previous week. My take on this is that moving oil from a tanker to an onshore storage facility is not a real increase in supply. It is just a change of location from over water to over land. On the flip side, if a tropical storm in the Gulf of Mexico keeps tankers from offloading oil does that lower global supply?

2. Refinery utilization came down a bit, but remains over 97%. This shows strong demand for crude oil.

3. U.S. crude oil production has been the same (10.9 million barrels per day) for four straight weeks. Yes, EIA is now rounding this off each week, but still interesting when compared with their super bullish outlook for ever-increasing U.S. oil production.

4. THIS IS THE MOST IMPORTANT STAT: Days of supply are much lower than where they should be.
> Crude oil at 23.7 days of supply, flat from the previous week despite the big surge in imports.
> Gasoline at 24.7 days of supply, down 0.7 days from the previous week. Regional shortages start at 20.0 days of supply.
> Jet Fuel at 23.2 days of supply, down 1.5 days from the previous week.
> Distillates at 29.4 days of supply, down 1.2 days from the previous week.

Crude oil price down today because traders were expecting a decline in crude oil inventories close to what API reported on Tuesday. Looking at days of supply, it is crystal clear that the U.S. oil market is very tight. If U.S. oil production growth really is flattening out, how will supply keep up with rising demand (highest in Q3 each year) and falling supplies from Venezuela, Libya, Canada, etc.?

Raymond James will be speaking at our Houston luncheon on Monday, July 16

Here is RJ's take on today's EIA report.

This week's petroleum inventories update was bearish relative to consensus. ''Big Three'' petroleum inventories (crude, gasoline, distillates) edged down by 0.1 MMBbls, versus consensus estimates for a draw of 6.5 MMBbls. Crude inventories rose by 1.2 MMBbls, versus consensus calling for a draw of 5.0 MMBbls. Cushing crude inventories fell by 2.1 MMBbls, with Gulf Coast inventories up 3.0 MMBbls. Gasoline posted a draw of 1.5 MMBbls, versus consensus calling for a draw of 0.8 MMBbls; while distillate inventories edged up 0.1 MMBbls, versus consensus calling for a draw of 0.7MMBbls. Total petroleum inventories were up 3.3 MMBbls. As always, regardless week-to-week movements, U.S. inventories do not constitute a holistic picture of global (or total OECD) inventories, but they represent the only ''real-time'' data source.

Refinery utilization ticked down to 97.1% from 97.5% last week as refiners remain at near-peak summer utilization levels. Total petroleum imports were 11.4 MMBbls per day, up from last week's 10.4 MMBbls per day. Total petroleum product demand rose 4.8% after last week's 0.3% increase. On a four-week moving average basis, there is a 1.4% y/y increase in total demand. U.S. (lower 48) production was 10.5 MMBbls per day, unchanged from last week (recall, the EIA began rounding to the nearest 100,000 Bbls per day as of last month). As always, weekly demand and supply figures are provisional estimates subject to frequent revisions.

As oil prices bounce around four-year highs, we continue to see a supportive fundamental backdrop: the larger U.S. producers are exhibiting restraint in capital allocation; OPEC+Russia's gradual unwinding of production cuts is being offset by declines in Venezuela and, to a lesser extent, Iran and Libya; there are still supply declines in several non-OPEC geographies (e.g., Mexico); and the picture for global demand growth is broadly upbeat. Meanwhile, a combination of a Permian ''spill over,'' growth in other inland U.S. basins, and higher Canadian import volumes could drive ratable increases for Cushing inventories over the coming quarters, potentially leading to a renewed ''blowout'' in the Brent-WTI spread. The 12-month futures strip ($67.77/Bbl for WTI and $76.37/Bbl for Brent) shows a slightly backwardated near-term curve for both WTI and Brent. Several wild cards remain in play, such as: 1) on the bullish side, the possibility of supply disruptions above and beyond the current ones; and 2) on the bearish side, the prospect of further strength in the U.S. dollar.