Energy Prospectus

On Wednesday morning, the U.S. Energy Information Administration (EIA) said in its Weekly Petroleum Status Report that U.S. commercial crude inventories for the week ending on February 26 increased by 10.4 million barrels from the previous week. At 518.0 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 1.5 million barrels last week, while distillate fuel inventories rose by 2.9 million barrels, remaining above the upper limit of its average range for this time of year.

Investors priced in a considerable build after the American Petroleum Institute reported on Tuesday afternoon that crude stockpiles last week surged by 9.9 million barrels. The reading came in far above analysts' expectations for an increase of 3.6 million. At the Cushing Oil Hub, inventories rose by 1.2 million barrels to a new record of 66.2 million, as the nation's largest storage facility continues to approach its operational limit.

Production, meanwhile, fell by 25,000 to 9.077 barrels per day, dropping below 9.1 million bpd for the first time in 2016. U.S. output is expected to fall considerably this year, as high-cost U.S. shale producers are forced to drill at lower levels while prices linger near record-lows. Last week, U.S. oil rigs declined for the 10th consecutive week, dropping to their lowest level since 2009. Marked decreases in domestic rig count levels typically provide lagging indications that production is about to level off.

Total U.S. storage capacity is 640 million barrels for crude oil, but "working inventory" levels are much lower.

Oil prices rebounded quickly because...
Saudi Arabia, Russia and eight other major producers are scheduled to meet later this month to craft a strategy to help stabilize the market.

Elsewhere, the Saudi government approached a group of U.S. banks to discuss a major international loan that could approach $10 billion, according to a report from Reuters. In December, Saudi Arabia projected an annual deficit of 326.2 billion riyals ($87 billion) due primarily to the downturn in oil prices. If Brent stays below $40/bbl the Saudi deficit will more than double this figure, forcing them to cut many social programs.

I believe Exxon will soon announce a MAJOR acquisition. This should start a significant round of M&A activity, which is a clear sign we are approaching the end of this cycle. M&A always picks up when the majors (with big time research teams) start the M&A. - Dan

NEW YORK, March 2 (Reuters) - Exxon Mobil Corp said on Wednesday it would continue to cut spending as long as crude prices remain low, but the world's largest publicly traded oil company added it may look at potential acquisitions in a bid to offset a dip in production.

Exxon, which has a triple-A credit rating, raised $12 billion in the debt market earlier this week, leading analysts to speculate the oil major may be gearing up for an acquisition spree.

The company said it has the financial flexibility to boost spending if the right opportunities present themselves.

But Chief Executive Officer Rex Tillerson, speaking at an analyst meeting in New York, said the company was more likely to purchase stand-alone assets than whole companies. He said he believed many companies have damaged their value by raising debt or issuing equity to deal with low oil prices.
"There's been a fair amount of value destruction in the last year," Tillerson said. "It's like buying a home with a big mortgage on it. There's not a lot of equity left there."

Texas-based Exxon said it expects its capital spending, which has been falling since hitting a peak of $42.5 billion in 2013, to drop next year from the $23.2 billion it now plans to spend this year. It spent $31.1 billion in 2015.