Energy Prospectus

Summary of Weekly Petroleum Data for the week ending April 12, 2019 (my comments in blue - Dan)

U.S. crude oil refinery inputs averaged 16.1 million barrels per day during the week ending April 12, 2019, which was 22,000 barrels per day less than the previous week’s average. Refineries operated at 87.7% of their operable capacity last week. Gasoline production decreased last week, averaging 9.9 million barrels per day. Distillate fuel production decreased last week, averaging 4.8 million barrels per day. < Refinery utilization should ramp up to ~95% by the end of May, which will increase demand for oil by ~1.3 million barrels per day. Each percent increase adds about 183,000 BOPD of demand.

U.S. crude oil imports averaged 6.0 million barrels per day last week, down by 607,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 6.5 million barrels per day, 20.6% less than the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 990,000 barrels per day, and distillate fuel imports averaged 138,000 barrels per day.

> U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.4 million barrels from the previous week. At 455.2 million barrels, U.S. crude oil inventories are about 2% below the five year average for this time of year.
> Total motor gasoline inventories decreased by 1.2 million barrels last week and are about 1% below the five year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week.
> Distillate fuel inventories decreased by 0.4 million barrels last week and are about 5% below the five year average for this time of year.
> Propane/propylene inventories increased by 2.4 million barrels last week and are about 22% above the five year average for this time of year.
>> Total commercial petroleum inventories increased last week by 2.5 million barrels last week.

Total products supplied over the last four-week period averaged 20.1 million barrels per day, down by 3.6% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 9.4 million barrels per day, down by 0.2% from the same period last year. Distillate fuel product supplied averaged 3.9 million barrels per day over the past four weeks, down by 7.6% from the same period last year. Jet fuel product supplied was down 5.3% compared with the same four-week period last year.

Comments from Raymond James:

This week's petroleum inventories update was bullish relative to consensus. "Big Three" petroleum inventories (crude, gasoline, distillates) fell by 2.9 MMBbls, versus consensus estimates for a draw of 1.3 MMBBls. As we have pointed out, now that OPEC supply cuts are showing up in the U.S., we expect normal seasonality to carry draws (notwithstanding week to week volatility). Turning to crude, inventories fell by 1.4 MMBbls, versus consensus calling for a build of 1.6 MMBbls and a normal seasonal build of 2.3 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 87.7% from 87.5% last week. Total petroleum product demand decreased 2.1% after last week’s 1.6% increase. On a four-week moving average basis, there is a 3.6% y/y decrease in total demand, though this has largely trended positive in 2019.

Even with the strong bounce year-to-date, the oil price is still below last year’s highs. As sentiment on oil continues to improve, we see a broadly supportive fundamental backdrop:
> the larger U.S. producers are exhibiting restraint in capital allocation;
> OPEC+Russia’s production cuts are noticeably contributing to inventory draws, with OPEC supply at four-year lows;
> the picture for global demand growth is broadly upbeat; and
> IMO 2020 is looming less than nine months from now.

The 12-month futures strip ($63.54/Bbl for WTI and $69.76/Bbl for Brent) shows modest backwardation for both Brent and WTI; for comparison, our 2019 forecast is $62 WTI/$72 Brent and 2020 forecast is $92.50 WTI/$100 Brent.

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.