Energy Prospectus

WTI seems to be gearing up to test $70/bbl, but traders await the weekly EIA storage report.

Phil Flynn at 9AM ET:

The Wall Street Journal reports that “Iran oil shipments are declining at a faster-than-expected pace ahead of U.S. sanctions set to begin in November. Iran expects crude exports to fall by a third in September, according to people familiar with purchasing plans, potentially posing an unforeseen supply risk to markets. Officials at the state-run National Iranian Oil Co. provisionally expect crude shipments to drop to about 1.5 million barrels a day next month, down from about 2.3 million barrels a day in June, say people familiar with the country’s ports loading program. Many experts had expected oil shipments to decline by about 1 million barrels by year's end. Now some of them say that fall may have already happened. Iran hasn’t yet announced its exports this month or its forecast for next month.” < Most of the analysts' estimates now point to Iran's oil exports dropping 1.0 to 1.5 million barrels per day. My bet is the top of that range. - Dan.

Dan Graber, at the UPI, reported that India will pass China as an oil consumer by the middle of the next decade. Graber cites Woods Mackenzie that says that India demand is growing so fast that their refineries can't keep up. Wood Mackenzie, says that India will pass China as the country with the largest demand for oil by 2024, accounting for about 30 percent of total oil demand growth. For domestic capacity, that growth is a problem. Refining capacity would need to maybe double to keep up with the demand for transport fuels alone.

That, of course, opens opportunities for U.S. refineries that are already running at record rates and will be more than happy to supply India with fuels, as the breakneck pace of growth continues. The growth in India’s oil demand is another reason why oil is in a multiyear bull market. When we said oil hit a generational low in 2015 and 2016, many were talking about lower for longer. Now despite the August respite from the rally, we are going to have to remember the big picture suggests we are structurally undersupplied. Week to week and season to season we will have our peaks and valleys, yet every month that passes the supply and demand balance continues to tighten.

EIA: Summary of Weekly Petroleum Data for the week ending August 24, 2018

U.S. crude oil refinery inputs averaged 17.6 million barrels per day during the week ending August 24, 2018, which was 326,000 barrels per day less than the previous week’s average. Refineries operated at 96.3% of their operable capacity last week. Gasoline production increased last week, averaging 10.2 million barrels per day. Distillate fuel production decreased last week, averaging 5.2 million barrels per day.

U.S. crude oil imports averaged 7.5 million barrels per day last week, down by 33,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 8.0 million barrels per day, 1.9% less than the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 868,000 barrels per day, and distillate fuel imports averaged 274,000 barrels per day.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.6 million barrels from the previous week. At 405.8 million barrels, U.S. crude oil inventories are at the five year average for this time of year.
> Total motor gasoline inventories decreased by 1.6 million barrels last week and are about 5% above the five year average for this time of year. Finished gasoline inventories decreased while blending components inventories remained virtually unchanged last week.
> Distillate fuel inventories decreased by 0.8 million barrels last week and are about 8% below the five year average for this time of year.
> Propane/propylene inventories increased by 2.6 million barrels last week and are about 12% below the five year average for this time of year.
Total commercial petroleum inventories decreased last week by 1.7 million barrels last week.

Total products supplied over the last four-week period averaged 21.2 million barrels per day, down by 0.2% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 9.6 million barrels per day, down by 1.5% from the same period last year. Distillate fuel product supplied averaged 4.1 million barrels per day over the past four weeks, down by 1.5% from the same period last year. Jet fuel product supplied was up 5.2% compared with the same four-week period last year.
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Days of supply for crude oil and refined products remains very low for this time of year. This is why the refineries continue to run at a very high utilization rate.

Raymond James: "This week's petroleum inventories update was bullish relative to consensus. ''Big Three'' petroleum inventories (crude, gasoline, distillates) fell by 5.0 MMBbls, versus consensus estimates for a build of 0.2 MMBbls. Crude inventories declined by 2.6 MMBbls, versus consensus calling for a draw of 1.5 MMBbls. Cushing crude inventories edged up by 0.1 MMBbls, while Gulf Coast inventories stayed flat. Gasoline inventories declined by 1.6 MMBbls, versus consensus calling for no change; while distillate inventories declined by 0.8 MMBbls, versus consensus calling for a build of 1.7 MMBbls. Total petroleum inventories were down 1.7 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."