Energy Prospectus

Overall the report is bullish. This is the time of the year when we should see declining inventory week-after-week. From Q2 to Q3 demand for refined products spikes by over a million barrels per day. - Dan

The U.S. Energy Information Administration said in its weekly report that crude oil inventories fell by 3.2 million barrels in the week ended June 3. Market analysts' expected a crude-stock decline of 2.8 million barrels, while the American Petroleum Institute late Tuesday reported a supply drop of 3.6 million barrels.

Supplies at Cushing, Oklahoma, the key delivery point for Nymex crude, fell by 1.4 million barrels last week, the EIA said. Total U.S. crude oil inventories stood at 532.5 million barrels as of last week.

The report also showed that gasoline inventories increased by 1.0 million barrels, compared to expectations for a drop of 0.7 million barrels, while distillate stockpiles rose by 1.8 million barrels.

Shell CFO Simon Henry today confirmed that the company, due to safety concerns, would no longer attempt to repair the 48-inch underwater pipeline that links onshore storage with the Shell Nigeria operated offshore Forcados export terminal. This follows a 2nd militant attack on the just repaired line late last week. The Forcados terminal has been out of service, and under force majeure, since mid-February. It was originally expected to be repaired and back on stream during June. The last full month of loading at Forcados (January) averaged 242,355 b/d. Loadings averaged 198,855 b/d in 2015.

The EIA released its June Short Term Energy Outlook (STEO) today. US crude production forecasts remain unchanged with 2016 projected to average 8.6 million b/d and 2017 projected to average 8.2 million b/d versus 2015 production of 9.4 million b/d. EIA estimates that crude oil production for May 2016 averaged 8.7 million b/d, which is more than 0.2 million b/d below April 2016, and approximately 1 million b/d below the 9.7 million b/d reached in April 2015. The STEO forecast for global demand growth in 2016 was revised higher (from 1.42 to 1.45 million b/d) while demand growth in 2017 was trimmed (from 1.54 to 1.47 million b/d).
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My forecast is that U.S. crude oil production will fall by more than 1,000,000 BOPD over the next 12 months. The rate of decline will accelerate this summer. My forecast will change if oil moves firmly over $60/bbl, but regardless of how high oil prices go it will take over a year before U.S. oil production stabilizes and moves up again. IMO the EIA projected U.S. production of 8.2 million barrels per day in 2017 is extremely optimistic, unless they think oil prices will rebound to over $80/bbl within six months. - Dan

International factors also lent support to oil prices this week, with crude oil rallying earlier today on news the Niger Delta Avengers blew up a Chevron (ticker: COP) well in Nigeria, rejecting peace talks with the government. Rebel attacks have brought oil output in Nigeria, once Africa’s largest crude producer, to a 20-year low.