Energy Prospectus

The U.S. Energy Information Administration said in its weekly report that crude oil inventories unexpectedly fell by 3.41 million barrels in the week ended May 6. Market analysts' expected a crude-stock rise of 0.714 million barrels, while the American Petroleum Institute late Tuesday reported a supply gain of 3.5 million barrels.

The report also showed that gasoline inventories decreased by 1.231 million barrels, compared to expectations for a drop of 0.71 million barrels, while distillate stockpiles fell by 1.647 million barrels, compared to forecasts for a 1.007 million decline.

This is the beginning of the summer demand spike for transportation fuels. As I reported in our newsletter, IEA is forecasting a 1.8 million barrel per day increase in demand for refined products, primarily gasoline and diesel, from Q1 to Q3. Demand for hydrocarbon based liquid fuels ALWAYS increases in the summer.

lower 48 production decreased by 80mb

The big drop in active drilling rigs since the first of this year should accelerate production decline rate in Q3. Companies are still dropping rigs. For example, Cimarex was running an eleven rig program and they are dropping to three by August. Supply/Demand should be back in balance within a few months.