Oil Inventories should fall this summer
Posted: Fri Jun 17, 2016 11:24 am
Deutsche Bank - Fixed Income Research
Commodities Digest - Drawing down crude oil inventory
17 June 2016 (5 pages/ 356 kb)
Download the complete report: http://pull.db-gmresearch.com/p/2542-55 ... 48d5dc.pdf
US inventory surplus declining to September
US crude oil markets are making the most of the refining season, making consistent draws on commercial crude oil inventory since mid May. Moreover, we expect the inventory surplus versus the five-year average to also decline, providing a constructive backdrop to crude oil markets.
Although our previous projection has been proven too aggressive as it was based on higher-than-actual refinery utilization, we continue to expect that the US crude oil inventory drawdown will average at a weekly rate of -2.88 mmbbl/week, considerably higher than the historical average of -1.65 mmbbl/week (based on a crude oil import rate of 7.8 mmb/d). Although we see some risk of slower draws (or small builds) in the next two weeks the rate of weekly drawdown should increase from the start of July and accelerate further into August. This would shrink the crude oil inventory surplus from 152 mmbbl (above the 2010-14 average) currently to 135 mmbbl at the start of September.
In September and October, however, signs of a strong refinery maintenance season may exacerbate seasonal crude oil inventory builds into the end of the year, even with US total production falling from 8.7 mmb/d currently to 8.2 mmb/d at the end of the year. The pivotal variable may well be the rate of crude oil imports which typically rises into the summer refining season and then falls into the end of the year.
However, imports have so far resisted the seasonal upward trend, and may therefore also stay flat into the end of the year at or just below 7.8 mmb/d. This would imply the crude oil storage surplus versus the five-year average rising from 135 mmbbl in September to 185 mmbbl at the end of the year. In order to see further decline in the storage surplus (and hence an increasingly positive market outlook), crude oil imports would need to fall towards 7.2 mmb/d at the end of the year. This would enable a modest further reduction in the storage surplus in the fourth quarter, down from 135 mmbbl to 123 mmbbl.
Unfortunately the level of imports is driven by a number of factors, the combined effect of which is difficult to ascertain. A tight WTI-Brent spread is helping to make imports more attractive, with the result that imports from OPEC countries pushed above 100 mmbbl/month in March, for the first time since July 2014. Heavy oil imports from Venezuela are on the rise since the start of the year, and other imports of heavy oil (from Mexico, for example) seem unlikely to decline given Gulf Coast refinery configurations. Lastly the fading contango has probably become tight enough to make even onshore refinery storage uneconomic, providing only one plausible reason why imports may moderate. Overall however it is unclear whether this factor on its own will drive a meaningful decline in import demand. With a steady or only minor decline in the import rate this year, the US crude oil inventory surplus is unlikely to decline further after the end of the summer refining season. We believe this situation mirrors the slow pace of the global supply-demand tightening, such that further progress in the oil-price rally will come at a slower pace in the fourth quarter.
Commodities Digest - Drawing down crude oil inventory
17 June 2016 (5 pages/ 356 kb)
Download the complete report: http://pull.db-gmresearch.com/p/2542-55 ... 48d5dc.pdf
US inventory surplus declining to September
US crude oil markets are making the most of the refining season, making consistent draws on commercial crude oil inventory since mid May. Moreover, we expect the inventory surplus versus the five-year average to also decline, providing a constructive backdrop to crude oil markets.
Although our previous projection has been proven too aggressive as it was based on higher-than-actual refinery utilization, we continue to expect that the US crude oil inventory drawdown will average at a weekly rate of -2.88 mmbbl/week, considerably higher than the historical average of -1.65 mmbbl/week (based on a crude oil import rate of 7.8 mmb/d). Although we see some risk of slower draws (or small builds) in the next two weeks the rate of weekly drawdown should increase from the start of July and accelerate further into August. This would shrink the crude oil inventory surplus from 152 mmbbl (above the 2010-14 average) currently to 135 mmbbl at the start of September.
In September and October, however, signs of a strong refinery maintenance season may exacerbate seasonal crude oil inventory builds into the end of the year, even with US total production falling from 8.7 mmb/d currently to 8.2 mmb/d at the end of the year. The pivotal variable may well be the rate of crude oil imports which typically rises into the summer refining season and then falls into the end of the year.
However, imports have so far resisted the seasonal upward trend, and may therefore also stay flat into the end of the year at or just below 7.8 mmb/d. This would imply the crude oil storage surplus versus the five-year average rising from 135 mmbbl in September to 185 mmbbl at the end of the year. In order to see further decline in the storage surplus (and hence an increasingly positive market outlook), crude oil imports would need to fall towards 7.2 mmb/d at the end of the year. This would enable a modest further reduction in the storage surplus in the fourth quarter, down from 135 mmbbl to 123 mmbbl.
Unfortunately the level of imports is driven by a number of factors, the combined effect of which is difficult to ascertain. A tight WTI-Brent spread is helping to make imports more attractive, with the result that imports from OPEC countries pushed above 100 mmbbl/month in March, for the first time since July 2014. Heavy oil imports from Venezuela are on the rise since the start of the year, and other imports of heavy oil (from Mexico, for example) seem unlikely to decline given Gulf Coast refinery configurations. Lastly the fading contango has probably become tight enough to make even onshore refinery storage uneconomic, providing only one plausible reason why imports may moderate. Overall however it is unclear whether this factor on its own will drive a meaningful decline in import demand. With a steady or only minor decline in the import rate this year, the US crude oil inventory surplus is unlikely to decline further after the end of the summer refining season. We believe this situation mirrors the slow pace of the global supply-demand tightening, such that further progress in the oil-price rally will come at a slower pace in the fourth quarter.