Note from Raymond James Energy Team

[dan_s]

This week's petroleum inventories update was mostly bullish relative to consensus. ''Big Three'' petroleum inventories (crude, gasoline, distillates) fell by 2.9 MMBbls, versus consensus estimates for a draw of 0.9 MMBbls. Crude inventories fell by 2.1 MMBbls, versus consensus calling for a draw of 2.5 MMBbls. Cushing crude inventories fell by 1.3 MMBbls, with Gulf Coast inventories down 1.6 MMBbls. Gasoline inventories fell by 1.7 MMBbls, versus consensus calling for a build of 0.1 MMBbls; while distillate inventories rose by 0.8 MMBbls, versus consensus calling for a build of 1.5 MMBbls. Total petroleum inventories fell 0.4 MMBbls. As always, regardless of their week-to-week movements, U.S. inventories do not constitute a holistic picture of global (or OECD) inventories, but they represent the only ''real-time'' data source.

Refinery utilization fell to 95.4% from 97.6% last week. Total petroleum imports were 10.4 MMBbls per day, edging down from last week's 10.5 MMBbls per day. Total petroleum product demand increased 2.7% after last week's 5.0% decrease. On a four-week moving average basis, there is a 4.9% y/y increase in total demand. U.S. (Lower 48) production was 10.5 MMBbls per day, up slightly from last week. As always, weekly demand and supply figures are provisional estimates subject to frequent revisions.

With oil prices near 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
sanctions-related pressure on Iranian exports; there are still supply declines in several non-OPEC geographies; and the picture for
global demand growth is broadly upbeat. Meanwhile, the “spill over” from Permian midstream bottlenecks is resulting in a widened
Brent-WTI spread. The 12-month futures strip ($69.02/Bbl for WTI and $77.29/Bbl for Brent) shows a backwardated near-term curve
for both Brent and WTI (at least in the front couple of months). 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.
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Back in July, one of Raymond James' concerns was that crude oil inventories at Cushing, OK would grow rapidly and become a bottleneck for Bakken and Mid-Continent upstream companies. That has not happened. Maybe it will in 2019, but as of today, oil stored at Cushing is way below the hub's working storage capacity (~70 million barrels).
See for yourself here: https://www.eia.gov/dnav/pet/hist/LeafH ... K_MBBL&f=W