Energy Prospectus

American Petroleum Institute data Wednesday showed a fall in U.S. crude stockpiles of 8.67 million barrels.
The Energy Information Administration is forecast to report Thursday a fall in crude inventories of 2.52 million barrels.

I am driving to Dallas this morning and will have more comments after the official EIA report comes out. Just remember that these reports are just SWAG's. EIA has no way of knowing what inventory levels are on any given day.

swags yeah, but reality is that mkt trades on the eia report and somewhat on the api.

Events show that the logic of "$60 is the new $100 is faulty. The mkt seems to regard the stagnant
numbers in energy as good reason to avoid energy altogether. Valuations today are imploding nearly
as much as they did during the nightmare of bankruptcies last year--even though no BKs are imminent.

It would seem that serious caution makes mnore sense than open-ended optimism, because the
recovery time may be far longer than conventional wisdom might think, because the market's not
buying the logic, and in the meantime has other modes of making a buck less dismal than energy.
The serious questions are, will there be an overcorrection> And if so, when?

To say the energy sector is "out of favor with Wall Street" is an understatement. However, the oil market is tightening and cycles tend to overshoot on both the upside and the downside. If the weekly draws like this continue, the price of oil will rebound. Getting U. S. oil inventory under 500 million in June should help.

Demand for oil based fuels increases by over 2 million bbls per day from Q1 to Q3.

EIA numbers:
June 1, 2017
CRUDE OIL INVENTORY'000 bbls (Week Ended 5/26/2017)

Current: 509,912
Actual Build/(Withdrawal): (6,428)
Economist Average Estimate: (2,667)
Previous: 516,340

Hi Dan, Glad to hear you say, <<To say the energy sector is "out of favor with Wall Street" is an understatement.>>
It would have been useful to hear you say it sooner. "Out of favor" is a euphemism for what the market's logic
is telling it to do. Since real investment capital is at risk here, it makes sense to do justice to both hypotheses--if
we're surprised to the upside, great. To say <<$60 is the new $100>> is to imply a relationship to the last bullish
decade. But this is a new era, with drilling costs coming down and political screaming for more leasing and drilling benefits--
outcomes damaging to energy pricing going forward. We'd all benefit - the climate too - if $100 is the new $100.

Scotiabank: Crude Oil
Weekly Petroleum Status Report Commentary: Fundamentals Slowly Shifting Market Sentiment

OUR TAKE: Fundamentals continue to point toward a tightening crude oil market even if traders have been rather pessimistic of late. Continuing draws in commercial crude oil inventories in the face of SPR stock draws and the more recent spike in gasoline implied demand are noticeably eroding the U.S. overhang. Offsetting some of this more bullish data was lower net imports, which some traders are likely attributing to the large stock draw and the focus on relentless domestic production growth.

Nonetheless, the recent OPEC+ supply cap extension and the near-term trend in rebounding demand suggest this summer should see significant improvement in crude oil futures, in our view.

In the last 8 weeks, U.S. crude oil inventory has declined ~26 million barrels. Last week's draw was over 6.2 million bbls.

In my opinion ....
> We are just beginning to see the full impact of the OPEC production cuts. OPEC is now in full compliance and the Russian lead "Group of 11" seems to be getting close to compliance.
> Demand for refined products, primarily transportation fuels ALWAYS increases in the summer. Per IEA's last report, Refiners' draws from crude oil inventories will increase by 2.7 million barrels per day from 3/31 to Q3 average. Most refiners do annual maintenance in Q1.
> Saudi Arabia's exports decline about 500,000 bbls per day in the summer because they use more for domestic power generation.

I think WTI will flop around in the $45-$50 range until we see proof that the OPEC cuts are working. Very early indications are that they are working to bring down inventories.