Energy Prospectus

Summary of Weekly Petroleum Data for the week ending June 5, 2020

U.S. crude oil refinery inputs averaged 13.5 million barrels per day during the week ending June 5, 2020 which was 178,000 barrels per day more than the previous week’s average. Refineries operated at 73.1% of their operable capacity last week. < This percentage needs to increase to over 90%. "What can not continue will not continue." It will take over 90% to meet U.S. demand for transportation later this summer.
Gasoline production increased last week, averaging 8.1 million barrels per day.
Distillate fuel production increased last week, averaging 4.8 million barrels per day.

U.S. crude oil imports averaged 6.9 million barrels per day last week, increased by 0.7 million barrels per day from the previous week. Over the past four weeks, crude oil imports averaged
about 6.4 million barrels per day, 13.3% less than the same four-week period last year.
Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 629,000 barrels per day, and distillate fuel imports averaged 177,000 barrels per day.

> U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 5.7 million barrels from the previous week. At 538.1 million barrels, U.S. crude oil inventories are about 14% above the five year average for this time of year. < Increased imports are the primary reason for the build.
> Total motor gasoline inventories increased by 0.9 million barrels last week and are about 11% above the five year average for this time of year. Finished gasoline and blending components inventories both increased last week.
> Distillate fuel inventories increased by 1.6 million barrels last week and are about 29% above the five year average for this time of year.
> Propane/propylene inventories decreased by 1.0 million barrels last week and are about 6% above the five year average for this time of year.
>> Total commercial petroleum inventories increased last week by 9.7 million barrels last week.

Total products supplied over the last four-week period averaged 16.3 million barrels a day, down by 20.1% from the same period last year.
Over the past four weeks, motor gasoline product supplied averaged 7.4 million barrels a day, down by 22.7% from the same period last year.
Distillate fuel product supplied averaged 3.2 million barrels a day more than the past four weeks, down by 18.1% from the same period last year.
Jet fuel product supplied was down 63.8% compared with the same four-week period last year.

"While the oil price rally should reverse all supply curtailments over the coming
weeks and months, capex cuts remain on pace to drive a 1.8-1.9 MMbbl/d
decline in US shale supply (20%) in 2020 (exit-to-exit). To stabilize production,
efficiency gains,along with lower base declines,have reduced the production
sustaining price in 2021 to the mid-$30s WTI (down from the low $40s at the
start of 2020). Due to reduced capital market access relative to prior cycles and
the likelihood that some (but not all) of these efficiency gains reverse as activity
begins to increase again, we estimate ~2 years of $50/bbl WTI would be required
for US production to fully recover to pre-Covid 19 levels. Some level of growth
would likely come back quickly in the first year,and moderate thereafter without
higher investment due to the reversal of temporary cost reductions, depletion of
drilled-but-uncompleted (DUC) well inventory,and rising base declines."- Morgan Stanley

MY TAKE: WTI under $50/bbl is unsustainable unless you believe that demand for oil based products is going to decline. That will only happen if humans are willing to accept a much lower standard of living. More people = more demand for oil based products. Keep in mind that U.S. oil production rolled over when WTI was over $60/bbl.

"Jet/Diesel inventories could keep a lid on refinery runs in the short run. Clearly there are some green shoots on the demand recovery side for
gasoline. And with that, we do expect refining utilization rates to creep up with further gasoline demand improvements on the way up. However,
we think there are several near-term impediments standing in the way of higher refining runs. As we noted above, jet demand is expected to
remain extremely challenged for the foreseeable future (though looking "less bad" than feared a few weeks ago), and given its relative similarities
to diesel fuel, refiners are likely to continue pushing jet production into the diesel pool. Since diesel demand held up so much better in the early
onset of COVID-19, and refining runs quickly fell to ~70%, this dynamic (and the record diesel yields which resulted) has been more or less tenable.
However, diesel yields anywhere near today's levels becomes highly untenable as utilization pushes even a few percentage points higher. In all
three cases (but especially pronounced in the base and bull cases) we expect refiners to shift some diesel production back to gasoline. BUT, this
can only go so far, as jet is much easier to unmake into diesel than gasoline." - Raymond James