EIA - Weekly Petroleum Liquids Report - July 10

[dan_s]

Note below From Raymond James:

This week's petroleum inventories update was bullish relative to consensus. "Big Three" petroleum inventories (crude, gasoline, distillates - including SPR) decreased by 7.2 MMBbls, versus consensus estimates calling for a draw of 4.1 MMBbls. We think that a sizable portion of the builds in May and early June was due to higher imports amid a narrower Brent-MEH spread – and, with the spread having widened back out, we expect draws to generally continue from here, especially as summer driving season gets busier. Turning to crude, total inventories (including SPR) fell by 9.5 MMBbls versus consensus calling for a draw of 2.9 MMBbls and a normal seasonal draw of 4.9 MMBbls. Refinery utilization was up slightly to 94.7% compared to the prior week at 94.2%. Total petroleum product demand increased by 2.5% after last week’s 0.5% decrease. On a four-week moving average basis, total petroleum demand increased 2.5% on a y/y basis.

Following a strong start to the year, oil prices pulled back in May and early June, amid concerns about increased U.S. inventories and global oil demand, before regaining their footing over the past few weeks. As the latest data illustrates, the rise in U.S. inventories was a transitory issue – and we still see fears of broader demand concerns as largely overblown. Fundamentally, we see a broadly supportive backdrop: the larger U.S. producers are exhibiting restraint in capital allocation; OPEC+Russia’s production cuts – officially extended this past week through March 2020 – are noticeably contributing to inventory draws; U.S. sanctions against Iran continue to be impactful; the picture for global demand growth is broadly upbeat; and IMO 2020 is looming six months from now. The 12-month futures strip ($57.28/Bbl for WTI and $63.05/Bbl for Brent) shows modest backwardation for both Brent and WTI; for comparison our recently raised 2019 forecast is $66.00 WTI & $74.50 Brent, and the 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 fluid political situation in Venezuela and the possibility of military escalation vis-à-vis Iran, and 2) on the bearish side, the prospect of global macro slowdown (including risks from trade conflicts) and resulting impact on oil demand.
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My take is that WTI will move into the "Right Price" of $65 to $75 within a few weeks. IOM 2020 Regs could push WTI up to RJ's forecast. If you live in Houston you definitely want to attend our July 31st luncheon. RJ will open with the reasoning behind their bullish 2020 forecast.