US Oil Inventories To Tighten -- SeekingAlpha Contributor -- May 29, 2019

Updates

Later, 2:23 p.m. CT: see comments as well as this stand-alone post regarding HGLs.

Original Post 

I suppose we will see the US crude oil inventory numbers a day later than usual due to the Monday holiday. If so, the API data will come out today; the EIA data tomorrow, Thursday, May 30, 2019.

From SeekingAlpha, earlier this week, predicting EIA numbers this week, this is from HFI Research:

• The tale of two oil markets is starting to get more attention from the sell-side community with two excellent reports from Raymond James and RBC (in the report).
• Everything points to lower US crude storage, as Brent-WTI Houston shot up indicating higher crude exports and 3-2-1 crack spread indicating higher refinery throughput.
• There was no SPR this week, so our estimate would be -3.4 to -5.4 mbbls for this week's EIA crude storage report.
• Global oil-on-water is also trending lower, while floating storage is at the lowest level excluding Iran (30 mbbls) and Venezuela (15 mbbls).
• We are projecting US crude storage to drop below 380 mbbls by year-end.

[Side note: note the abbreviation for "million." This is quite non-standard. Generally, volumes in this context are abbreviated "mm" for "thousand-thousand" or million.]

So, again, the contributor suggests a draw of around 5 million bbls when EIA reports later this week. But look at this: the contributor suggests that by the end of the year, US crude oil inventories will drop to below 380 million bbls. If so, that would be amazing.

A new term for me: "oil-on-water" -- oil in transit.

A new term for me: the "3-2-1 crack spread": The 3:2:1 crack spread approximates the product yield at a typical U.S. refinery: for every three barrels of crude oil the refinery processes, it makes two barrels of gasoline and one barrel of distillate fuel.

An old concept: floating storage.

Note: as long as we're looking at new terms, here's an acronym I had not seen before. Again, on twitter today, and it appears most folks have not heard of it; I had not: HGL, hydrocarbon gas liquids: link here.

From a supply-side perspective, HGL constitutes liquids produced at both natural gas processing plants (natural gas plant liquids, or NGPL) and refineries (liquefied refinery gases, or LRG). From a demand-side perspective, HGL is marketed as natural gas liquids (NGL) and refinery olefins. From a chemistry perspective, HGL includes the alkanes (paraffins) – ethane, propane, normal butane, isobutane, and natural gasoline (equivalent to pentanes plus and nearly chemically identical to plant condensates) – and the alkenes (olefins) – ethylene, propylene, butylene, and isobutylene. However, HGL does not include liquefied natural gas (LNG) or aromatics.

As defined above, HGL captures the complete set of gas liquids marketed by midstream and downstream companies. Production of HGL by natural gas processing plants, fractionators, refineries, condensate splitters, and other facilities can be surveyed and analyzed with consumption data to build a clearer HGL picture. Figure 1 provides a simplified view of supply, demand, and chemistry of HGL.

This taxonomy was developed to clarify which elements to include when retrieving data from EIA reports, to highlight refinery olefins, and to define more specifically NGL, LRG, and condensate terms used loosely in many publically-available reports.

For example, from a tweet:

The database shows approximately 3.2 million b/d of HGL pipeline capacity is also set to be added in just 2019. FYI - "HGL" is the EIA term for things like Propane, Ethane, Butane, etc.

Disclaimer: this is not an investment site. Do not make any investment, financial, job, travel, or relationship decisions based on what you read here or what you think you may have read here.

Crude Oil Drawdown: 2.5 Million Bbls -- At This Rate -- 62 Weeks To Re-Balance -- June 21, 2017

(Update: methodology was wrong in some parts of this table; it has been updated and corrected at this post):

Week	Date	Drawdown	Storage	Weeks to RB
Week 0	Apr 26, 2017		529	180
Week 1	May 3, 2017	0.9	528	178
Week 2	May 10, 2017	6	522	29
Week 3	May 17, 2017	1.8	520.2	95
Week 4	May 24, 2017	4.4	515.8	38
Week 5	May 31, 2017	6.4	509.9	41
Week 6	June 7, 2017	-3.3	513.2	60
Week 7	June 14, 2017	1.7	511.5	63
Week 8	June 21, 2017	2.5	509	62

When the mainstream business media talks about "re-balancing," they are talking about getting back to the "5-year-average," whatever that is. I don't know if I've ever seen the "5-year-average" noted by a mainstream journalist.

John Kemp, Reuters, continues to use the much better metric: 10-year averages and range. The 10-year average is around 350 million bbls of US crude oil (not including the SPR). 

Whatever it is, it's skewed by the Saudi surge from 2014 to 2016, the first of two trillion-dollar mistakes by the Saudis. In fact, for meaningful "re-balancing" to occur and a return to more bullish crude oil prices we need to see US crude oil supplies fall back to the "historical average" -- a 21-day supply or about 350 million bbls.

Right now, the rate of drawdown, averaging 2.55 million bbls/week since April 26, 2017, means that it will take 62 weeks to "re-balance." That would be late 2018.

Note: in the table above, a "negative" number in the "drawdown column" (the third column) means that there was a build in the crude oil inventories. Drawdown and storage (columns three and four) are in millions of bbls.

Disclaimer: my own data may very slightly from official sources for various reasons. I often make simple arithmetic errors.

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The Whisky Page

I first read about the peculiarities of Talisker in Whiskypedia: A Compendium of Scottish Whisky, Charles MacLean, c. 2010, page 307. I bought the book used through a third party seller at Amazon; I think it cost less than $5, plus shipping. New, it was an $18 book. The book arrived shrink-wrapped and in perfect condition. The best thing about it: the spine is not broken or bruised or cracked but the pages lie flat, suggesting the previous owner really enjoyed the book. But not one extraneous mark or dog-eared page. But I digress.

Page 307: a unique characteristic of Talisker is the peppery, even chilli-peppery (sic) 'catch' as you swallow. Nobody knows where it comes from.

After I read that I was determined to find a Talisker to taste. I assume it's easy to find, but surprisingly my go-to spirits store -- which has a very, very large collection of Scotch -- did not carry Talisker.

Last night, traveling a bit out of the local area, I visited another spirits store, and low and behold, they had two bottles of the 10-year Talisker.

Some other data points regarding Talisker:

• the distillery was founded in 1830
• the Talisker house was where Johnson and Boswell stayed in 1764 -- somewhere I have a copy of A Journey to the Western Islands of Scotland
• multiple owners since
• absorbed by D.C.L. in 1916
• at one time, triple distilled; 1925, double distilled
• one of only a handful of malts bottled as singles in the early 20th century
• until 1988, bottled at 8YO; thereafter at 10YO
• an oddity: it is traditionally bottled at slightly higher than standard strength
• very few independent bottlings have been done, since the malt is extensively used in the Johnnie Walker blends
• Robert Louis Stevenson, 1887: "The King o' drinks as I conceive it -- Talisker, Islay, or Glenlivet."
• barley comes from eastern Scotland; adds greatly to the cost of Talisker
• at one time there were seven distilleries on the isle of Skye, but now there is only one: Talisker

I have not opened the bottle; I have not tasted it. I do not know when I will open the bottle. I have to really be in the right mood to try it for the first time. I'm looking for the best food pairing. Perhaps English crisps, or perhaps sushi. 

US Crude Supplies Post Biggest Weekly Fall Of The Year -- Third Week In A Row For Falling Inventory -- April 26, 2017

Link here.

But that didn't help oil prices which actually fell back. Why? Unexpected inventory increases for gasoline and distillates.

How much did oil inventories fall? Remember, the US has over 500 million bbls of inventory and 32 days of supply. Historically, the US has done just fine with 350 million bbls of inventory and 21 days of supply.

So, how much did crude oil inventories fall? Threepointsix (3.6) million bbls. This was the largest weekly decline so far this year. The forecast ranged from a about a one-million bbl gain to a one-million bbl decline.

The gasoline inventory increase is described as "glaring." Gasoline stockpiles rose by 3.4 million bbls; distillage stockpiles were up 2.7 million bbls. At least one senior petroleum analyst said "this is rather early to see such large builds."

So, I assume the price of gasoline will drop this week. LOL.

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Meanwhile, The Permian Is Expected To Keep Growing

From the EIA:

Crude oil production in the Permian Basin is expected to increase to an estimated 2.4 million barrels per day (b/d) in May, based on estimates from EIA’s Drilling Productivity Report.

Between January 2016 and March 2017, oil production in the Permian Basin increased in all but three months, even as domestic crude oil prices fell.

As production in other regions fell throughout most of 2015 and 2016, the Permian provided a growing share of U.S. crude oil production.

With rising oil prices over the past year, the Permian continues to be attractive to drillers, as reflected in rising rig counts. As of April 21, 2017, the number of rigs in the Permian Basin reached 340, or 40% of the 857 total oil- and natural gas-directed rigs operating in the United States. The Permian rig count reached as high as 568 in late 2014 before falling to a low of 134 in spring 2016. --- EIA

So Much for Demand Destruction --

Didn't I just use this subject line a few days ago?

Link here to AP news:

Oil prices rose to near $107 a barrel Wednesday after a report showed U.S. crude supplies fell unexpectedly, a sign demand may be improving in the world's largest economy.

The American Petroleum Institute said late Tuesday that crude inventories fell 1.4 million barrels last week, breaking a two-month trend of growing supplies. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of 2.1 million barrels.

Inventories of gasoline fell 1.4 million barrels last week.

Wow, that Saudi oil can't get here fast enough. 

Saudi Arabia is preparing to extend this year's unexpected jump in oil sales to the United States, adding to speculation about the response of the world's top oil exporter to sanctions against Iran and a rally in prices.

The kingdom's shipments to the United States have quietly risen 25 percent to the highest level since mid-2008, according to preliminary U.S. government data, a sizeable leap that appears at least partly related to the imminent completion of a major expansion at its joint-venture Motiva refinery in Texas.

And, of course, the drop in gasoline inventories comes on the heels of the report that three refineries in the Philadelphia area are scheduled to close. Refiners can't make a profit: oil costs too much and the costs are difficult to pass on to the consumer. That's because there's so much competition: with four service stations on most major urban intersections, one can always go to the service station with the lowest price, like $3.79 vs $3.83. On a 12-gallon fill-up, one could save .... thinking .... calculating ... 48 cents.

By the way, back to the linked story: the most common three words I see in business news these days are: analysts, rise, unexpectedly.

The next most common three words: analysts, fell, unexpectedly.

We either need new analysts or new words.