Weekly EIA Petroleum Report -- February 9, 2022

Weekly EIA petroleum report:

• US crude oil in storage decreased by a pretty significant 4.8 million bbls from the previous week
• WTI: with release of EIA data -- up 0.4%; up 34 cents; trading at $89.70
• WTI: later in the morning as things start to "sink in," WTI went above $90 again; trading at $90.18;
  
• US crude oil in storage now stands at 410.4 million bbls; 11% below the five-year average
• this "deficit" is ahead of expectations of soaring demand as early as two months from now
• "escape from Fauci" will happen much more quickly than analysts seem to pencil in
  
• US imported 6.4 million bbls of crude oil/day; decreased by 0.7 million bopd; but imports averaged  6.6 million bopd, 13% more than the corresponding four-week period last year;
• those who argue "quality of oil" doesn't matter, need to explain why the US imports so much crude oil;
  
• refiners are operating at 88.2% of their operable capacity; pretty much unchanged;
• US distillate fuel decreased by 0.9 million bbls last week; the distillate fuel deficit worsens; the deficit is now 19% below five-year average; 
• along with tighter supplies of fertilizer, farmers watching closely; consumers could be surprised this summer;
• jet fuel supplied was up 30.4% compared with same four-week period last year;

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US Crude Oil Inventories

Updates

Later, 10:55 a.m. CT: literally, less than an hour or so of writing the note below, a contributor over at Seeking Alpha had an article with this subject heading: "Running Out Of Oil? DOE Inventories Falling Fast." Link here. 

The lede:

The Department of Energy provides weekly updates on the world's largest observable inventory of oil and oil products; those stocks are falling at a near record pace in 2022. Each oil market strategist has their own preferred metric, and the weekly reports are volatile, but when combining all the metrics (commercial oil, strategic reserves, oil products, etc.) and observing trends over several reports, it's clear inventories are falling fast. In the first five weeks of the year, the US normally builds several million barrels of inventory ahead of the summer driving season; this year, inventories have fallen by almost a million barrels a day.

More:

In a break from recent history, there doesn't appear to be a strong supply response to rising prices and declining inventories.

When Chevron reported Q4 results two weeks ago, the Company guided the street to flay YoY production in 2022.

Exxon did the same, as did BP and Conoco.

Bakken producer Whiting announced they plan to increase capex 55% in 2022 and acquire assets to generate only ~3% production growth.

Driller Nabors  reported earnings Tuesday and indicated they don't expect to add any rigs outside the US in Q1.

Although the inability of OPEC+ to hit increased production targets has become consensus, there's some debate on the US's ability to meet growing demand.

This week Citi oil strategist Ed Morse advised clients to short the oil market, while famed oil investor Pierre Andurand suggested inflation-adjusted oil prices are relatively low by historic standards (the 2008 high of $147/b would equate to $222/b today).

The Biden administration for their part has indicated "all options are on the table" for managing energy prices. Spokesperson Psaki said yesterday the White House is talking with oil-producing countries about production increases, and oil consuming countries about strategic reserves releases. Neither tactic has done much to control prices in recent months.

Although a White House agreement with Iran to allow for additional exports would create incremental supply.

With US E&Ps set to report earnings, the market is sure to be focused on the allocation of cash flow between shareholder returns and production growth.

The prospect of accelerating US production would have been considered a bearish indicator only a few weeks, but may become considered healthy given current market conditions. It will be interesting to see if DOE forecasts for oil surpluses are adjusted after seeing production plans from US E&Ps in coming weeks.

Original Post

For the archives: global crude oil inventories.

• two schools of thought
• one school: demand will exceed supply through the end of this year; OPEC has no spare capacity;
• the other school of thought: things will work out just fine; OPEC has enough spare capacity to keep crude oil / gasoline prices from going ballistic

• Biden White House 
• publicly is in the second school of thought: adequate crude oil available; producing countries simply need to produce more oil
• apparently the White House has a long list of producing countries; but at the end of the day, there are only three:
• US, Saudi Arabia, and Russia
  

• those who feel OPEC+ has no spare capacity point to the data; everyone else believes in unicorns
  

• For investors: does it matter?
• if OPEC+ lacks spare capacity, oil bulls should do very well;
• if OPEC+ has spare capacity but prefer to "manage" their assets, oil bulls will also do well
• in either scenario oil bulls should do well as far out as the eye can see -- about eight months

• US consumers:
• should know more when the driving season begins in about four months;
• interestingly enough, if demand accelerates starting March, 2022, with "end" of Covid-19, we might have more tea leaves to interpret before the actual driving season begins
  

• Historically: higher prices have led to increased production; groups to watch as oil trends toward $90 / bbl:
• first tier:
• US
  
• US shale operators
• US offshore (ex: Guyana)
• Russia
• Saudi Arabia
• second tier:
• OPEC - some Africa (outside Saudi Arabia, Russia, Libya)
• Iran: in second tier only if one believes Biden will lift sanctions
  
• Mexico: I'm being generous not moving Mexico to background noise
  
• Canada: without Keystone XL and adequate seaports, pretty much flat-lined production;
  
• background noise:
• Ecuador -- not OPEC
• some Africa including Libya  -- OPEC