Energy Prospectus

Summary of Weekly Petroleum Data for the week ending September 27, 2019 with my comments in blue.

U.S. crude oil refinery inputs averaged 16.0 million barrels per day during the week ending September 27, 2019, which was 496,000 barrels per day less than the previous week’s average. Refineries operated at 86.4% of their operable capacity last week. < We are in the "turn-around" period when refiners do maintenance and make changes necessary to make winter blend gasoline and home heating oil.
Gasoline production decreased last week, averaging 10.1 million barrels per day.
Distillate fuel production decreased last week, averaging 4.8 million barrels per day.

U.S. crude oil imports averaged 6.3 million barrels per day last week, down by 87,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 6.6 million barrels per day, 15.7% less than the same four-week period last year. < Impact of the attack on Saudi Arabia will not show up in imports until November. We don't import much oil from Saudi Arabia anyway.
Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 843,000 barrels per day, and distillate fuel imports averaged 50,000 barrels per day.

> U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.1 million barrels from the previous week. At 422.6 million barrels, U.S. crude oil inventories are at the five year average for this time of year. < API and EIA need to compare notes because API reported a 5 million barrel decline in crude oil inventories. I know these numbers sound big, but at 16 million barrels per day, U.S. refiners processed 112 million barrels of oil last week. Crude oil inventories remain quite low on days of supply.
> Total motor gasoline inventories decreased by 0.2 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.
> Distillate fuel inventories decreased by 2.4 million barrels last week and are about 8% below the five year average for this time of year. <
> Propane/propylene inventories increased by 1.0 million barrels last week and are about 15% above the five year average for this time of year.
>> Total commercial petroleum inventories decreased last week by 0.9 million barrels last week. < Traders always have a knee jerk reaction to the crude oil inventory, but when you take out the increase in propane/propylene, the real oil inventories declined by 1.9 million barrels. The low distillate inventories should be a concern because with winter approaching we need more heating oil.

Total products supplied over the last four-week period averaged 20.9 million barrels per day, up by 2.1% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 9.3 million barrels per day, down by 0.1% from the same period last year. Distillate fuel product supplied averaged 3.9 million barrels per day over the past four weeks, down by 0.6% from the same period last year. Jet fuel product supplied was down 4.2% compared with the same four-week period last year.

Note that Phil's article below came out before the EIA weekly report above. Just remember that API and EIA don't have gauges on every oil and refined product storage tank. Their weekly numbers are "Wild Ass Guesses" or "WAGs" based on formulas. In my opinion, EIA's numbers tend to err in the direction that will keep oil and refined product prices lower. They may not do it on purpose, but they know their bosses want lower gasoline prices. Note that both the API and EIA agree on the decline in distillate supply, which IMO s/b a concern. - Dan

The Energy Report: Conflicting Narratives
By Phil Flynn (Oct 02, 2019 09:27AM ET)

The oil inventory report is not fitting the bearish narrative that is being exposed as global manufacturing data takes a dive. The surprise plunge in the ISM purchasing managers’ index to 47.8 in September raised concerns about a major global economic slowdown and a bad start to the fourth quarter of the year. Yet the American Petroleum Institute (API) report seemed to show data that seems to fly in the face of the doom and gloom. Instead of the projected increase in crude supply that many analysts were calling for, we instead saw a sizable 5.92-million-barrel drawdown. The draw came as U.S. exports flourished and global demand for products tighten inventory.

Reports that distillate supply in New York Harbor had taken a major tumble were confirmed as the API reported that distillate supply fell by a very large 1.74 million barrels. That is going to be the one to watch as the new International Maritime Organization (IMO), the 171-member state United Nations agency that sets standards for shipping, is set to reduce the maximum amount of sulfur content (by percent weight) in marine fuels used on the open seas from 3.5% to 0.5% by 2020. These regulations are intended to reduce sulfur dioxide, nitrogen oxides, and other pollutants from global ship exhaust, yet will also tighten distillate supply.

The API did report a 2.13-million-barrel increase in gasoline supply but that contrasted with private reports that show big supply drops in New York Harbor.

In fact, oil supply is really tighter than the market thinks as supply is ready to fall below 400 million barrels. Anas Alhajji points out that after accounting for line fill in new oil pipelines supply is really at the lowest levels since 2014. In fact, he says that U.S. crude inventories will be too close to the 5-year average between 2010-2014. They are even lower when you adjust for rising exports.

So, while oil struggles on slowing growth fears and impeachment fears, the global oil market is going to see meaningful tightening this year. We are going to see significantly higher distillate demand and despite the calm recently, the tensions in the Persian Gulf have not gone away.

Iran’s Grand Poohbah and Supreme Leader Ali Khamenei Is stating that they will continue reducing its commitments under the nuclear deal until it reaches a “desired result” like the removal of sanctions.

Still, Reuters is reporting that “A plan for talks presented to the United States and Iran by French President Emmanuel Macron is broadly acceptable to the Islamic Republic, President Hassan Rouhani said on Wednesday during a cabinet meeting that was broadcast live. He said some wording needed to be changed in the plan, which outlines that Iran will not pursue nuclear weapons and will help the security of the region and its waterways, while Washington will remove all sanctions. It would also allow Iran to immediately resume oil sales.”

But Rouhani also told the cabinet meeting, broadcast on state TV, that mixed messages about sanctions received from the United States while he was there last week had undermined the possibility of talks. Rouhani attended the United Nations General Assembly in New York. He added that it was not acceptable for U.S. President Donald Trump to say in public that he would intensify sanctions while European powers were telling the Islamic Republic in private that he was willing to negotiate. "The American president on two occasions, once in his speech at the United Nations and another time, said explicitly that we want to intensify sanctions. I told these European friends, so which part should we accept? Should we accept your word that you say America is ready?" Rouhani said.

Goodbye Ecuador! Ecuador said it wants out of OPEC. Ecuador is a very small producer and wants to leave the group so it can pump more oil and not be restrained by the cartel. I would hate to be the guy that had to break the news to Crown Prince MBS. I don’t think he will be pleased.