Energy Prospectus

CRUDE OIL INVENTORY/’000 bbls (Week Ended 4/3/15)

Current: 482,393
Actual Build/(Withdrawal): 10,949
Economist Average Estimate: 3,280
Previous: 471,444

Oil inventory reported by EIA includes estimated pipeline fill and field level storage. Total storage capacity in the U.S. is approximately 640 million bbls.

We are about 85 million bbls above the high end of the storage range for this time of year. Storage normally peaks around 400 million bbls in April, right before refiners ramp up production of transportation fuels for the summer season.

This is definitely a headwind to oil prices, but not as big of a deal as what some analysts are saying. Storage will not "overflow" and we do not have to reduce storage to zero before prices go up. Crude oil is "raw materials' for refiners. With a spike in demand for refined products just ahead and U.S. oil production soon to go on steady decline, it makes sense that refiners want more crude oil in inventory. Also, "speculators" are now taking physical ownership of crude oil in anticipation of higher prices down the road.

It would not surprise me to learn the Saudis were behind the inventory build in US. Just a hunch.

I think it is just smart buyers who see the fundamentals shifting and oil prices heading higher later this year. I think EIA will soon be reporting 50,000+ barrel per day declines in U.S. production week after week. The number of well completions lags the active rig count by 4-6 months.

U.S. oil production peaked at 9.4 million bbls per day in March. Over 4 million BOPD comes from shale wells that are declining at 30% to 50% per year. We are not completing enough new wells to replace the decline rate.

Plus, demand for crude is going to ramp up sharply in May.

See: http://www.eia.gov/petroleum/weekly/
"EIA projects total crude oil and unfinished oil refinery inputs to be 180,000 barrels per day (bbl/d) (1.1%) more this summer compared with last summer."

If the Saudis were just interested in maintaining market share and letting the market rebalance itself, why are they ramping up their production in the face of increasing Iraq oil and possibility of More Iran oil. Seems like the Saudis have the means and the motivation to punish shale producers by helping widen the WTI Brent spread while selling the stored oil in the futures market at a gain. It is no lose for them.