Energy Prospectus

Summary of Weekly Petroleum Data for the week ending August 23, 2019 with my comments in blue.

U.S. crude oil refinery inputs averaged 17.4 million barrels per day during the week ending August 23, 2019, which was 295,000 barrels per day less than the previous
week’s average. Refineries operated at 95.2% of their operable capacity last week. < Refineries' inputs should remain high through mid-September.
> Gasoline production increased last week, averaging 10.7 million barrels per day.
> Distillate fuel production decreased last week, averaging 5.2 million barrels per day.

U.S. crude oil imports averaged 5.9 million barrels per day last week, down by 1,290,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 7.0 million barrels per day, 12.3% less than the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 965,000 barrels per day, and distillate fuel imports averaged 125,000 barrels per day. < Lower imports appear to be the primary reason for the BIG DROP in crude oil inventories. High refinery inputs are also drawing down crude oil inventories.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 10.0 million barrels from the previous week. At 427.8 million barrels, U.S. crude oil inventories are at the five year average for this time of year. < Very low on days of supply, which EIA will confirm this afternoon.

> Total motor gasoline inventories decreased by 2.1 million barrels last week and are about 3% above the five year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week. < At just 25 days of supply.
> Distillate fuel inventories decreased by 2.1 million barrels last week and are about 4% below the five year average for this time of year.
> Propane/propylene inventories increased by 3.7 million barrels last week and are about 14% above the five year average for this time of year.
>> Total commercial petroleum inventories decreased last week by 11.2 million barrels last week.

Total products supplied over the last four-week period averaged 21.7 million barrels per day, up by 2.3% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 9.8 million barrels per day, up by 2.4% from the same period last year. Distillate fuel product supplied averaged 3.9 million barrels per day over the past four weeks, down by 5.5% from the same period last year. Jet fuel product supplied was down 1.2% compared with the same four-week period last year. < Jet fuel inventories are DANGEROUSLY LOW.

The Phil Flynn Energy Report 08-28-2019

Getting Tight

Despite predictions of new supply overwhelming an oversupplied market, the reality may actually be the opposite. New supply from the start of the Plains All American Pipeline’s Cactus II, a 670,000 barrel a day pipeline, connecting the Permian Basin to Corpus Christi, Texas, and from there to the world, has already been priced in with spreads and backwardation in the crude curve, suggesting a market that is tightening.

Demand numbers in the U.S. are stellar and if we keep this up, oil will rally, trade war or no trade war. In fact, U.S. oil supply, more than likely, will fall below the average range for this time of year as U.S. demand hangs around record highs. Despite all this talk of inverted yield curves and recession, global oil demand is defying the negativity.

OPEC is predicting stronger than expected demand but because of their overachieving cuts, that they say are at 159% compliance, they now predict a drop in global oil inventories in the second half of the year. The Joint Ministerial Monitoring Committee (JMMC) of OPEC and non-OPEC said compliance to cuts increased by 22 percentage points higher than in June. The committee said, “This high level of overall conformity has offset uncertainty in the market due to ongoing economic growth worries.”

U.S. supply data seems to be backing their case. The American Petroleum Institute (API) reported a massive 11.1 million-barrel crude oil supply drop. If this is confirmed by the EIA, it will drive U.S. supply below average for this time of year. Even as we head into maintenance season, the outlook for U.S. supply looks to me to be on a steep downward trajectory. New supply from the Cactus pipeline will be needed as OPEC cuts take their toll.

Oil demand will exceed expectations because demand will get a bump from global economic stimulus. OPEC is already seeing it as they said they have seen, “ongoing healthy oil demand so far.” So, what happens when the world gets prepared for a demand drop that does not happen? Oil prices spike. The API also reported a 300K drop in gasoline supply and a very large 2.5M drop in distillate supply as farmers are getting started on harvest. Looks like OPEC cuts are starting to take their toll and predictions made by OPEC saying they expect big draws into the end of the year are coming true.

In fact, as we have said before, the yield curve inversions are bullish for oil, not bearish. The last few times there was a major yield curve inversion, it sent oil higher anywhere from 80% to 140%. U.S. demand will remain strong as consumers remain very confident, despite many trying to talk us into a recession. The oil market is actually predicting a strong market and tightening supply.

Details from EIA:

U.S. daily production up from 12.3 MMbpd to 12.5 MMbpd < seems questionable to me. Keep in mind that production is the biggest WAG.

Days of supply
Crude oil drops from 25.1 to 24.4 days
Gasoline drops from 24.2 to 23.7 days
Jet fuel increases from 21.7 to 22.0 days
Distillates drop from 35.9 to 35.0 days

Big drop in imports over the last two weeks is the most stunning stat.