They Must Be Reading The Blog -- We Talked About This Five Days Ago -- The Huge (Unexpected) US Crude Oil Build -- Zeits -- February 12, 2018

Updates

Later, 11:28 a.m. Central Time: from Bloomberg's gadly -- OPEC's oil price nightmare is coming true. US shale production is surging on higher crude, now the fear is waning demand growth.

The latest surge in U.S. oil output will probably hasten the country's rise to the top of the producer pile. More important, it's starting to look as though at least half of OPEC's nightmare scenario for 2018 -- a surge in shale output and slowdown in demand growth -- is coming true.

Last week's avalanche of releases from the U.S. Department of Energy showed daily oil production above 10 million barrels a day for the first time since 1970.

A massive week-on-week jump of 332,000 barrels a day must be treated with caution, though. U.S. drillers didn't have a sudden rush of enthusiasm as WTI prices broke through a psychological $65 ceiling. Rather, the weekly data, which aren't revised retrospectively, are catching up with monthly estimates that give a more accurate picture of output.

For much of last summer, the weekly data were heavily criticized for over-estimating U.S. output growth. Now, the reverse is true.

Later, 11:17 a.m. Central Time: from the WSJ, OPEC revises crude supply forecasts on higher US production. Traders have grown increasingly concerned that burgeoning US production could once again flood the market.

In its closely watched monthly oil market report, the Organization of the Petroleum Exporting Countries said supply from producers outside the cartel should increase by 1.4 million barrels a day this year. Almost all of it comes from the U.S., where growth is expected to be 1.3 million barrels a day. 

• Brent closed at $62.79 on Friday. 
• Bakken: $50.86 
• reminder: one can find pricing for Bakken at this site

Original Post

 

We talked about this five days ago. 

Link to SeekingAlpha: a big build in petroleum inventories sends a warning signal. From Richard Zeits - the summary --

• last Wednesday the EIA reported a 1.9 million barrels increase in U.S. commercial crude inventories
• on the surface, the headline build in crude might appear modest
• however, the report in its entirety raises some concerns with regard to how tight the market for crude oil and petroleum products currently is. 

"The headline build in crude might appear modest." But this is the problem: the goal has been to decrease the inventory glut. This is going the wrong way. The time to "re-balance" has been extended by another two weeks, and now the tea leaves suggest US crude oil production will increase with WTI solidly above $55.

From the linked article:

The build in crude inventories reported last week must be taken in the context of refiner demand.

Refiner utilization jumped unexpectedly last week. Crude inputs into refineries were 0.8 million barrels higher week-on-week, resulting in a 5.6 million barrels ("MMb") increase in demand for crude, as compared to the previous week.

In the meantime, exports of crude oil and imports of crude oil were in-line with their respective two-month averages.

Even in this context, the build in crude inventories last week does not raise any major red flags. If anything, the data point shows a healthy balance between refiner demand and crude supply.

However, the big combined inventory build in crude and key refined product categories - which added up to 10.7 million barrels last week - is difficult to ignore.

Much, much more at the link including the rest of the story:

• Commercial crude oil: +1.9 MMb
• SPR crude oil: +0.5 MMb
• Gasoline: +3.4 MMb
• Distillate fueld oil: +3.9 MMb
• Kerosene/Jet Fuel: +1.0 MMb

This note:

The magnitude of the recalibration is quite remarkable and illustrates the fact that many forecasts for U.S. crude production - including the STEO - were caught behind the curve and now have to undergo significant adjustment. Market perception with regard to U.S. production growth trajectory is in the process of changing.

And then look at the graph:

From natural natural / wiki: Condensate produced from oil wells is often referred to as lease condensate. 

From the EIA, at natural gas / wiki -- a footnote:

A final point to consider involves the distinction between the very light grades of lease condensate (which are included in EIA's oil production data) and hydrocarbon gas liquids (HGL) that are produced from the wellhead as gas but are converted to liquids when separated from methane at a natural gas processing plant. These hydrocarbons include ethane, propane, butanes, and hydrocarbons with five or more carbon atoms – referred to as pentanes plus, naptha, or plant condensate. Plant condensate can also be blended with crude oil, which would change both the distribution and total volume of oil received by refineries.