Energy Prospectus

Summary of Weekly Petroleum Data for the week ending March 1, 2019
My comments in blue.

U.S. crude oil refinery inputs averaged 16.0 million barrels per day during the week ending March 1, 2019, which was 100,000 barrels per day more than the previous week’s average. Refineries operated at 87.5% of their operable capacity last week. Gasoline production increased last week, averaging 9.9 million barrels per day. Distillate fuel production increased last week, averaging 4.9 million barrels per day. < By the end of March most of the refiners will finish their semi-annual maintenance projects and refinery utilization will ramp up to ~95%, drawing more crude oil from storage.

U.S. crude oil imports averaged 7.0 million barrels per day last week, up by 1,084,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 6.7 million barrels per day, 11.7% less than the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 555,000 barrels per day, and distillate fuel imports averaged 246,000 barrels per day.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 7.1 million barrels from the previous week. At 452.9 million barrels, U.S. crude oil inventories are about 4% above the five year average for this time of year.
> Total motor gasoline inventories decreased by 4.2 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 decreased last week.
> Distillate fuel inventories decreased by 2.4 million barrels last week and are about 3% below the five year average for this time of year.
> Propane/propylene inventories decreased by 2.0 million barrels last week and are about 11% above the five year average for this time of year. < "Polar Vortex #3 is causing demand for propane to increase. In the rural areas of the Midwest lots of propane is consumed for space heating.
>> Total commercial petroleum inventories decreased last week by 0.4 million barrels last week.

Total products supplied over the last four-week period averaged 20.4 million barrels per day, up by 0.9% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 8.9 million barrels per day, down by 2.0% from the same period last year. Distillate fuel product supplied averaged 4.1 million barrels per day over the past four weeks, up by 0.3% from the same period last year. Jet fuel product supplied was down 3.6% compared with the same four-week period last year.
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In my opinion, this is a "neutral" storage report for oil. We are still in the refinery maintenance period when crude oil inventories must build to meet the large spike in demand for the feed stock that come each year in Q2. Demand for transportation fuels is seasonal. Global demand for hydrocarbon based liquids - primarily transportation fuels - increases by 1.5 to 2.0 million barrels per day from Q1 to Q3. This happens each year, as you can see in this chart: https://www.iea.org/oilmarketreport/omrpublic/

Just to assure myself that I didn't lie to you about the annual increase in demand for oil based products that occurs each year from Q1 to Q3, I went to the EIA actual data for 2015 to 2018.
This is the actual increase in demand for hydrocarbon based refined liquids, primarily transportation fuel.

Increase from Q1 to Q3 (million bbls per day):
2015 = 2.45
2016 = 1.35
2017 = 1.85
2018 = 1.43

Also, keep in mind that "summer blend" gasoline requires more crude oil than "winter blend" gasoline. Refiners can blend in more NGLs (primarily butane) that are cheaper than crude oil for the winter blend gasoline.

Raymond James take on the oil market as of March 6:

This week's petroleum inventories update was bearish relative to consensus. "Big Three" petroleum inventories (crude, gasoline, distillates) rose by 0.4 MMBbls, versus consensus estimates for a draw of 1.1 MMBbls and a normal seasonal build of 1.7 MMBbls. Normal seasonality would suggest continued builds through March before returning to draws (amplified by the OPEC supply cuts showing up in the U.S. data). Crude inventories rose by 7.1 MMBbls, versus consensus calling for a build of 1.5 MMBbls and a normal seasonal build of 5.3 MMBbls. Normal seasonality shows crude stocks building through April, before drawing as refiners exit maintenance and into the summer driving season. Refinery utilization rose to 87.5% from 87.1% last week. Total petroleum imports were 8.9 MMBbls per day, up from last week’s 8.0 MMBbls per day. Total petroleum product demand decreased 4.6% after last week’s 3.6% increase. On a four-week moving average basis, there is a 0.9% y/y increase in total demand.

Even with the bounce year-to-date, the oil market is still down from last year’s highs. While sentiment on oil remains choppy, we see a broadly supportive fundamental backdrop: the larger U.S. producers are exhibiting restraint in capital allocation; OPEC’s (especially Saudi’s) production cuts are already noticeable and should contribute to inventory draws as the year progresses; the picture for global demand growth is broadly upbeat; and IMO 2020 is looming ten months from now. The 12-month futures strip ($58.38/Bbl for WTI and $65.02/Bbl for Brent) shows modest short-to-medium term backwardation for Brent, followed by a relatively flat curve; for comparison, our 2019 forecast is $62 WTI/$72 Brent and 2020 forecast is $92.50 WTI/$100 Brent. < Compares to what I am using for WTI in my forecast/valuation models: $52.50 average WTI in 2019 and $60.00 WTI in 2020.

Several wild cards remain in play, such as: 1) on the bullish side, the possibility of supply disruptions above and beyond the current ones, such as the very uncertain political situation in Venezuela; and 2) on the bearish side, the prospect of global macro slowdown and resulting impact on oil demand.