Energy Prospectus

The U.S. Energy Information Administration said in its weekly report that crude oil inventories fell by 2.223 million barrels in the week ended July 1. Market analysts' expected a crude-stock decline of 2.25 million barrels, while the American Petroleum Institute late Wednesday reported a supply decrease of 6.7 million barrels.

Supplies at Cushing, Oklahoma, the key delivery point for Nymex crude, fell by 0.082 million barrels last week, the EIA said. Total U.S. crude oil inventories stood at 524.4 million barrels as of last week, which the EIA considered to be “historically high levels for this time of year”.

The report also showed that gasoline inventories decreased by 122,000 barrels, compared to expectations for a decrease of 353,000 million barrels, while distillate stockpiles fell by 1.574 million barrels, compared to forecasts for an increase of 0.031 million.

Except for the difference with the API report, the EIA report looks bullish to me because crude oil inventories have declined 8 of the last 9 weeks. The U.S. Dollar Index is up slightly today, which may explain the drop in crude oil prices.

yeah, the steady rise of the dollar thru the day has certainly not helped, but watching the 1 min wti chart at eia announcement time showed a sharp decline when eia failed to confirm the api.

IMO the traders over-react to these storage reports which are SWAG's at best. The important thing is the trend of declining crude inventories. I expect crude inventories to decline another 30 to 40 million barrels from now through mid-September.
Concerns over the small increase in the active rig count are way over-done as a few dozen more active rigs is not going to slow the rapidly declining U.S. oil production. The active rig count will need to double before U.S. oil production can stabilize.

If you look at the data - domestic production was down 159k barrels a day last week, with -38k in the lower 48 and the rest in Alaska (big dips are often 1 time events).

The reason that stocks did not drop much is the level of imports is moving to much higher levels as domestic production comes down.

Last week's imports were over 800k barrels/day higher than the week before, and looks higher than recent weekly averages.

So clearly, there are importers who still want to buy foreign oil and put it in storage, must be believing they can still make a profit doing so.

The lower than expected draw is not the result of domestic production force feeding into storage....

If I were a refiner, I would buy as much crude oil at today's low prices as I could and cram it into storage. As I have said here many times, in the 3rd quarter I expect to see the rate of decline for U.S. (in fact all non-OPEC) production accelerate. My SWAG is that U.S. crude oil production is now falling by over 200,000 barrels per day per month and may go to 300,000 barrels per day if the oil price stays under $50/bbl.
I believe this because of the HUGE drop in the active rig count since the first of the year. There is a lag between the change in the active rig count and production.

If 9.7M barrels/day is considered the peak US production, then his week's production is down almost 1.3M from peak.

Clearly, this oil has come out of the marketplace.

It will be interesting to watch the follow-on reaction - if anyone out there is actually reading and digesting the EIA data.

I've seen several reports by people worried that Canadian heavy oil will come back online following the fires and that Nigeria will ramp up production.

I agree the Canadian heavy oil will increase, but it does not compete directly with WTI. As for Nigeria, it is a hell hole and the rebels are nothing more than terrorists. Expecting that group to keep an agreement is about as likely as Hillary telling the truth.

My hope is that next week's IEA Oil Market Report will clear up some of this noise.

Bearish drivers

A Reuters survey showed that Nigeria’s crude oil production rose by 150,000 bpd (barrels per day) to 1.55 MMbpd (million barrels per day) in June 2016—compared to May 2016. The EIA (U.S. Energy Information Administration) reported that Nigeria’s crude oil production fell to 1.43 MMbpd in May 2016—the lowest level in the last 22 years. Meanwhile, Bloomberg reported that Nigeria’s crude oil production rose from 1.3 MMbpd in early June 2016 to 1.9 MMbpd by the end of June 2016, according to Nigerian government sources. Nigeria’s crude oil production fell due to rebel attacks on oil pipelines and infrastructure. Nigeria targets production of 2.2 MMbpd in July 2016 if pipeline repairs are completed.

The Canadian Association of Petroleum Producers projected that Canada’s crude oil production could hit 4.9 MMbpd by 2030—compared to 3.8 MMbpd in 2015. Restarting crude oil production in Canada after a wildfire should have a negative impact on crude oil prices.

From Oil & Gas 360 Closing Bell Report:

Oil started the day on a slight upswing, but following today’s Petroleum Weekly Status Report issued by the EIA, the price began to plummet, ending the day down 4.76%. Initial reports coming last night from the American Petroleum institute (API) showed a draw on inventories of 6.7 million barrels. However, the API was just setting up the EIA for disappointing news. The EIA reported Thursday morning that domestic crude oil supplies declined by 2.2 million barrels.

The draw on inventories was less than initially anticipated following the API report on Wednesday night, which usually translates to downward trading. The smaller than expected drop combined with concerns of a slowdown in demand for crude oil converged for some bad news for oil’s recent rally.

The drop in crude prices came even though the data also revealed a seventh-straight weekly fall for crude stockpiles and a sizable drop in daily domestic oil production. Another detrimental factor was the potential rise in Libyan and Nigerian output.

The EIA also reported a gasoline draw just about a third of market expectations, sending gasoline futures tumbling as well. U.S. gasoline inventories also fell less than expected in the government report, slipping 122,000 barrels versus forecasts of 353,000 barrels, adding to fears of a glut of the motor fuel despite the busiest season for driving.

Vessels carrying gasoline-making components could not unload at the New York Harbor delivery point for futures this week because of lack of space.

Following the Brexit decision, global markets have been on a wild ride. The assumption is that a global economic slowdown will result, and a glut in supplies of refined products will weigh on oil markets. An indicator of slowdown comes from the slowdown in Asian crude demand. While this could be a blip on the radar, it could represent permanent structural changes and an overall economic slowdown.
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My take on all of this is that Brexit has put a lot more FEAR in the market and it doesn't take much to move oil markets. Traders seemed to ignore that U.S. crude oil inventories have been on steady decline for two months and obviously U.S. production is dropping faster than many "experts" forecast just a few weeks ago. Just remember that fundamentals do win out in the end.