Energy Prospectus

WTI is up ~30 cents per barrel on Wednesday morning ahead of the EIA's weekly report.

Tuesday April 9, 2019

After the markets closed on Tuesday, the American Petroleum Institute (API) reported a build in crude oil inventory of 4.1 million barrels for the week ending April 5, coming in over analyst expectations of a ­2.294-million-barrel build.

API also reported a draw in gasoline inventories for week ending April 5 in the amount of 7.1 million barrels. Analysts estimated a much smaller draw in gasoline inventories of 2.009 million barrels for the week. Also, distillate (includes diesel) inventories decreased by 2.4 million barrels, compared to an expected a draw of 1.3 million barrels for the week. < IMO this is bullish and offsets the build in crude oil inventories. Crude inventories need to build because refiners will soon need to ramp up to 95% utilization (an increase of more than 1.0 million barrels per day) to meet the spike in demand for transportation fuels that happens each summer. - Dan.

Crude oil inventories at the Cushing, Oklahoma facility fell by 1.3 million barrels for the week.

The U.S. Energy Information Administration report on crude oil inventories is due to be released on Wednesday at 10:30a.m. EST.

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Oil prices hit a five-month high on Monday, with WTI surging above $64 per barrel and Brent topping $71. “The mood is increasingly turning bullish, but several feedback loops are about to start spinning that stand in the way of a prolonged oil rally,” Norbert Ruecker of Swiss bank Julius Baer told Reuters. “Russia already signaled its willingness to raise oil output from June. Fuel remains costly in emerging markets, with soft currencies adding to high oil prices.”

Libyan oil faces potential disruptions. Battling in and around Tripoli has intensified in recent days, with the Libyan National Army (LNA) conducting some airstrikes on the city and its airport. The international community, including the U.S., called on the LNA to cease fighting. Libya’s main oil fields are away from Tripoli and are already in territory controlled by the LNA. They don’t face immediate disruption, but because the LNA could become stretched by fighting for Tripoli, the potential for outages is on the rise. Oil prices spiked on Monday as a result of uncertainty.

Banks hike oil price forecast. A Wall Street Journal survey of 12 investment banks finds rising expectations for oil prices. The banks average forecast puts Brent at $68 per barrel this year, up $1 from the same survey in February.

India delays Iran oil purchases. Indian refiners are holding off on buying oil from Iran ahead of the expiration of U.S. waivers on sanctions, according to Reuters. India had been granted a waiver by the Trump administration to buy about 300,000 bpd, which was about half of what India was importing prior to sanctions. Until the White House offers clarity on next steps, India is delaying purchases, Reuters reports.

Note from John Kemp at Reuters:

Unplanned factors reduced global production by 2.8 million barrels per day in March, down from 3.3 million bpd in February, but up from 1.8 million bpd a year earlier, according to the U.S. Energy Information Administration (EIA).

Disruptions among members of the Organization of the Petroleum Exporting Countries (OPEC) reached 2.49 million bpd in March, double the same month last year.

In recent months, OPEC and total disruptions have been running at the highest levels for almost three years and near some of the highest for a decade (“Short-Term Energy Outlook”, EIA, April 2019).

And the EIA figures do not include Venezuela, where output has been erratically declining and too variable to define a "normal" undisrupted level. Nor do they take into account the potential impact of renewed fighting in Libya, which could upset production and exports in the next few months if it intensifies.

The figures therefore understate the extent to which involuntary production cuts - actual and threatened - have caused the oil market to tighten in recent months (https://tmsnrt.rs/2I9WWQy).

Sanctions and unplanned problems can help make Saudi Arabia’s role as swing producer more effective by simplifying coordination with other producers and reducing the risk of cheating.

FWIW (not much): EIA revises up oil price forecasts for 2019

Due to a slightly tighter global oil market, the US Energy Information Administration, in its latest Short-Term Energy outlook, forecasts Brent spot prices to average $65/bbl in 2019, up $2/bbl from last month’s STEO forecast, and $62/bbl in 2020. These compare with an average of $71/bbl in 2018. EIA expects that West Texas Intermediate crude oil prices will average $8/bbl lower than Brent prices in the first half of this year before the discount gradually falls to $4/bbl late this year and through 2020. Crude oil prices increased for the third consecutive month in March and are trading near the middle of the range established over the previous year. Increasing crude oil supply disruptions and voluntary reductions in oil production from the Organization of Petroleum Exporting Countries are among the recent price drivers in the crude oil market. Saudi Arabia produced 9.85 million b/d in March, down by almost 900,000 b/d from October. Venezuela has experienced several prolonged electric power failures throughout the country, which has directly resulted in reduced crude oil production and exports.

Always keep in mind that EIA is extremely conservative in their forecast and to keep their jobs all Department of Energy employees must believe in Man Made Global Warming and the Green New Deal. < Just kidding, but probably not too far off on the requirements.

This helps:
Economists at Goldman Sachs Group Inc. have lowered the likelihood of a U.S. recession over the next four quarters to slightly over 10 percent from roughly 20 percent at the end of the fourth quarter. An easing in financial conditions has helped reduce downside risks considerably, Goldman economists including Jan Hatzius and David Choi wrote in a note.