EIA Weekly Petroleum Liquids Report - Dec 19

[dan_s]

Before you look at the EIA announcement below, let me assure you that there is NO GLUT of oil in the world today. None, zero, nada. I had dinner last night with several friends that happen to be EPG members. They grilled me on "What has happened in the last two months to take us from $70 oil at the beginning of October to sub-$50 oil now????" My response was nothing except the "Trump Effect". U.S. and OECD petroleum inventories are well within normal range and likely to decline steadily in the first half of 2019. The Trump Effect is .....
> Washington announced BIG sanctions against Iran, causing oil prices to spike above the "Right Price" for oil. (IMO the right price is ~$65/bbl).
> Trump pressured Saudi Arabia to increase exports ahead of the mid-term elections to keep fuel prices low
> On November 6th Washington announced sanction waivers to 8 countries, so sanctions have a much SMALLER impact on Iran's oil exports than was anticipated.
> Hedge funds panic and sell long positions in oil, which creates a cascade of selling that takes WTI way below the "Right Price"
> The erosion of confidence in the oil markets will take a few months to get oil back to the "Right Price".
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EIA Summary of Weekly Petroleum Data for the week ending December 14, 2018 My comments in blue

U.S. crude oil refinery inputs averaged 17.4 million barrels per day during the week ending December 14, 2018, which was 28,000 barrels per day less than the previous week’s average. Refineries operated at 95.4% of their operable capacity last week. Gasoline production decreased last week, averaging 10.3 million barrels per day. Distillate fuel production decreased last week, averaging 5.4 million barrels per day. < If refinery utilization remains ~95%, it should bring crude oil inventories down when the impact of the OPEC+ production cuts take effect in January. Keep in mind that there is a lag between production cuts in the Middle East and oil tankers unloading in the U.S.

U.S. crude oil imports averaged 7.4 million barrels per day last week, up by 30,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 7.5 million barrels per day, 1.6% more than the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 595,000 barrels per day, and distillate fuel imports averaged 139,000 barrels per day.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.5 million barrels from the previous week. At 441.5 million barrels, U.S. crude oil inventories are about 7% above the five year average for this time of year. < Still within the 5-year range and still way below 30 days of supply. NO GLUT.
> Total motor gasoline inventories increased by 1.8 million barrels last week and are about 3% above the five year average for this time of year. Finished gasoline and blending components inventories both increased last week. < Refiners ramp up gasoline production in anticipation of lots of motorists hitting the road for the holidays.
> Distillate fuel inventories decreased by 4.2 million barrels last week and are about 11% below the five year average for this time of year. < Dangerously low for this time of year.
> Propane/propylene inventories decreased by 3.3 million barrels last week and are about 6% below the five year average for this time of year. < Lots of propane used for space heating.
>> Total commercial petroleum inventories decreased last week by 10.3 million barrels last week. < Bullish, but not unexpected for this time of year.

Total products supplied over the last four-week period averaged 21.2 million barrels per day, up by 4.5% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 9.1 million barrels per day, up by 0.6% from the same period last year. Distillate fuel product supplied averaged 4.2 million barrels per day more than the past four weeks, up by 6.5% from the same period last year. Jet fuel product supplied was down 5.8% compared with the same four-week period last year. < Jet fuel inventories are low for this time of year.
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This should calm down the claims that the "sky is falling" and that we will be drowning in oil very soon. However, the negative view of the oil & gas sector is still strong and it will take months to repair the "Trump Effect". Keep in mind that oil below $50/bbl today will cause even more pressure on upstream companies to reduce D&C spending, which they should do, and end up causing a shortage of oil supply in the future. "They call them cycles for a reason" and what's happening now causes the cycles to be more severe than they should be. MOST OF THE TRADING IN NYMEX FUTURES IS NOW DONE BY COMPUTERS. Today they should be generating BUY recommendations.