US Crude Oil Inventories "Unexpectedly" Increase -- June 7, 2107

WTI drawdown: forecast: a 4-million bbl drawdown; actual: a 3.3 million build. Wow. From CNBC. Weekly reports are here (dynamic link). I can hardly wait to see the John Kemp graphs over at Twitter.

• crude oil inventories: up 3.3 million bbls; now stand at 513.2 million bbls; at this rate (since it's an increase in build, and not a drawdown) the amount of US crude oil inventories will never decrease -- LOL -- see graph below
• gasoline inventories: increased by 3.3 million bbls
• refinery inputs: 17.2 million bopd; down 283,000 bopd
• crude oil imports: 8.3 million bopd; up by 356,000 bopd
• crude oil imports: over the past four weeks, up almost 10% above the same four-week period last year

WTI drops below $46. Now at $46.44. Next support, $45. If breaks through $45, watch for $42 WTI.

It looks like WTI is dragging down the overall market. WTI now at $46.16 (9:43 a.m. Central Time).

Then look at this:

Maybe I'm mis-reading something, but on a day that WTI drops to $46/bbl, the above graph does not look particularly reassuring for oil bulls.

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Weeks to Re-Balance

Prior to the Saudi Surge, the US had 350 million bbls of crude oil in inventory (not including SPR) and 21 days of supply. Folks are talking about re-balancing to the historical 5-year average, which, of course, makes no sense, since the 5-year average was greatly "inflated" by the two-year Saudi surge (2014 - 2016). Granted, US demand is increasing; US is exporting crude oil; and US refineries are exporting refined products, so perhaps one can argue the "350-million" basis is a bit low, but at most, I would assume, 360. So, I'm leaving it at "350" for now.

Just for the fun of it, I was tracking, based on the weekly drawdown how long it would take to "re-balance" -- back to 350 million bbls in US crude oil inventory (see graph below). The numbers don't quite work in some cases, but the raw data is from the EIA. Drawdown (column 3 in millions of bbls is shown as a positive number; any increase in inventory is shown as a negative -- that may be confusing and I may change that in the future).

For example, last week, based on a drawdown of 6.4 million bbls / week, it would have taken about 25 weeks to re-balance. Using an average up to that time of 3.9 million bbls/week over the five-week period, and an inventory of 509.9 million bbls, it would have taken 41 weeks to "re-balance" to 350 million bbls. Whew. 

To "re-balance":

• with today's increase, the average over six weeks of drawdown: 2.7 million bbls/week on average over the past six weeks
• with today's inventory number of 513.2 million bbls, it would take 60 weeks to "re-balance" to 350 million bbls.  (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	50
Week 3	May 17, 2017	1.8	520.2	59
Week 4	May 24, 2017	4.4	515.8	51
Week 5	May 31, 2017	6.4	509.9	41
Week 6	June 7, 2017	-3.3	513.2	60

Disclaimer: I make a lot of simple arithmetic errors. 

Worth Reposting: Saudi Blowing Smoke -- Bloomberg -- June 4, 2017

Updates

June 4, 2017: Saudis just blowing smoke -- Bloomberg. Nice update of the three Motiva refineries: Port Arthur in Texas (Saudi Aramco); Norco, Convent in Louisiana (Shell). The Shell refineries take very little Saudi Arabian oil; Port Arthur takes 238,000 bopd from Saudi Arabia (21% of all Saudi crude sales to the US. To the other two refineries, only 33,000 bopd sourced from Saudi Arabia.

Crude loading during June in Saudi Arabia will arrive off the U.S. coast between mid-July and mid-August. By then, refinery runs will already be at their seasonal peak and attention will be starting to turn towards the fall slowdown, which typically gets under way around the end of July. This may allow the Saudis to claim a seasonal downturn as evidence of cuts.

Bloomberg tanker tracking data shows Saudi crude exports to the U.S. in May at around 840,000 barrels a day. That is a drop of 160,000 barrels from April. Significant? Perhaps, but it only takes them back to where they were in January, the first month of the output deal.

From the Bloomberg article, this is an interesting chart. I did not know this. I assume nearly 100% of Saudi oil coming to the US was going to "Motiva." It turns out that only about a quarter of Saudi oil coming to the US ends up at "Motiva."

May 28, 2017: perhaps the graph below explains why the Vienna meeting was a bust for OPEC. LOL.  
 

Original Post

 

Note how much higher OPEC production is today -- after the production cuts -- than it was in 2014, prior to the production cuts. I guess it's how one defines "production cuts."

Thought experiment: overlay this chart with US shale production during same period of time.

Worth Re-Posting -- Global Crude Oil Supplies Increased First Three Months Of 2017 -- June 2, 2017

A gazillion stories on the oil sector will be reported this month (as every month). It's hard to sort out the most important story or data point among all those stories. It's hard to think there's a bigger or more important data point than this one from the IEA: global crude oil inventories actually increased during the first three months of 2017.

The second most important data point, or possibly even more important: it is expected that US shale will more than make up for an OPEC / non-OPEC cut through March, 2018. From that same link:

The US could add up to 1.5m barrels per day to global oil production next year, nullifying the impacts from the deal, which was extended by nine months in May, according to Igor Sechin.

The story that could be bigger before the end of 2017: the OPEC / non-OPEC pact begins to show signs of cracking.

The More Things Change, The More They Stay The Same -- June 2, 2017

Back on January 28, 2016, The Financial Times said OPEC was irrelevant. It seems things haven't changed, although now The Financial Times says the shale surge could make OPEC obsolete. Seems like that train has already left the station. But from today's linked article:

Ramped up US shale oil production could erase any gains in the oil price achieved by a landmark deal between Russia and Opec to cut production, the chief executive of Russian oil giant Rosneft said on Friday. 

The US could add up to 1.5m barrels per day to global oil production next year, nullifying the impacts from the deal, which was extended by nine months in May, according to Igor Sechin. 

The supply cut deal between global producers attempts to curb bloated stockpiles that have kept prices under pressure. Brent crude is languishing below $50 a barrel – half the level of its 2014 peak. Speaking at a conference in St Petersburg, Mr Sechin also cast doubt on the prospects for a large increase in electric car usage.

I talked about this just a few minutes ago.

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The Cut

The More Things Change, The More Things Stay The Same

From Reuters:

When OPEC struck its original supply deal in November last year, few had banked on such rapid increases in crude production elsewhere, such as U.S. shale oil, or on slowing demand growth in emerging powerhouses such as India or China.

Inventories across the most developed nations have barely budged. According to the International Energy Agency, oil stocks rose by 24.1 million barrels in the first three months of the year to 3.025 billion barrels and, five months into the deal, a number of investment banks have cut their oil price forecasts.

That's nice. My memory is not so bad. Some months ago I thought I had read that global crude oil inventories stood at 3 billion bbls but couldn't find the source (quickly) so I moved on. Glad to see  my memory wasn't so bad.

What surprised me was that global crude oil inventories have actually increased. I thought Saudi had pretty much drawn down their storage based on all their published comments. Oh me, oh my.

WTI Down Again -- May 31, 2017

Second trillion-dollar mistake: see graph below. Oil traders are not impressed. Pushing WTI below $48. OPEC doesn't understand the market. If you only meet "what is already baked into the price" when the announcement is made, the commodity will sink in price. In this case, the market was "hoping" for further cuts, not simply continuation of the same (which hasn't worked); in addition, it's hard to call it a "cut" when production still exceeds what it was before the surge. See graph below. 

Oil down again, today. Down over 2%. Around $48.65. [Later: now, down almost 4% and well below $48. I guess Prince Salman was not kidding: he doesn't care if oil goes to zero. Posted, 10:53 a.m. Central Time.]

Active rigs:

$48.63	5/31/2017	05/31/2016	05/31/2015	05/31/2014	05/31/2013
Active Rigs	50	28	80	189	187

 
RBN Energy: continuing the series -- new infrastructure to help Corpus Christi keep pace with Permian growth.

Market opening: NASDAQ scores another record high. WTI continues to fall; at $48.26.

Global glut: there's a meme out there that "OPEC and Russia will do whatever it takes to 'stabilize' the market." LOL. They can start by looking at this graph:

Note how much higher OPEC production is today -- after the production cuts -- than it was in 2014, prior to the production cuts. I guess it's how one defines "production cuts."

About That Cut In OPEC Production --- May 27, 2017

Updates

June 4, 2017: Saudis just blowing smoke -- Bloomberg. Nice update of the three Motiva refineries: Port Arthur in Texas (Saudi Aramcco); Norco, Convent in Louisiana (Shell). The Shell refineries take very little Saudi Arabian oil; Port Arthur takes 238,000 bopd from Saudi Arabia (21% of all Saudi crude sales to the US. To the other two refineries, only 33,000 bopd sourced from Saudi Arabia.

Crude loading during June in Saudi Arabia will arrive off the U.S. coast between mid-July and mid-August. By then, refinery runs will already be at their seasonal peak and attention will be starting to turn towards the fall slowdown, which typically gets under way around the end of July. This may allow the Saudis to claim a seasonal downturn as evidence of cuts.

Bloomberg tanker tracking data shows Saudi crude exports to the U.S. in May at around 840,000 barrels a day. That is a drop of 160,000 barrels from April. Significant? Perhaps, but it only takes them back to where they were in January, the first month of the output deal.

May 28, 2017: perhaps the graph below explains why the Vienna meeting was a bust for OPEC. LOL.  
 

Original Post

 

Note how much higher OPEC production is today -- after the production cuts -- than it was in 2014, prior to the production cuts. I guess it's how one defines "production cuts."

Thought experiment: overlay this chart with US shale production during same period of time.

Why I Love To Blog -- Reason #23 -- May 22, 2017

Weeks ago, if not months ago, this was the first ad-free, no-subscription/password-required blog on the Bakken that saw through the smoke and mirrors of OPEC's production cuts (wink, wink). This was the first ad-free, no-subscription/password-required blog to note that whatever cuts Saudi agreed to were more than made up by taking oil out of storage.

Finally, "everyone" has caught on and it's been reported everywhere. Most recent example: The Wall Street Journal.

But there's a "new game" in town: talking about getting crude oil inventories back to the 5-year average.

The problem with that: the 5-year average was greatly affected by the Saudi surge in production 2014 - 2016. See graphic at this post.

To make this meaningful, we need to get global crude oil inventories back to pre-2014 levels and back to an 18-day supply level vs the current 32-day supply level.

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Notes From The Man-Cave

An incredibly beautiful Texas evening. Cool, no breeze, feels like 74 degrees. Wow, pretty good: weather channel says it's 72 degrees.

On the patio -- man-cave -- listening to ABBA in the background, surfing the net, and occasionally reading the current issue of The New York Review of Books. Perhaps the best is the essay on Wilkie Collins. I only know of him because a female friend in another life-time told me about Wilkie Collins and The Woman In White. It was because of her -- the female friend in another life-time, not the woman in white -- that led me to reading the Wilkie Collins novel. I've completely forgotten the story line; I may have to re-read it. LOL.

Interestingly enough, The Woman In White was also referenced in the recent biography of Bram Stoke, the author of Dracula. Yes, that Dracula. 

OPEC Runs Out Of Options -- Bid To Boost Oil Prize Fizzles -- Bloomberg -- May 6, 2017

New Poll

With regard to the stories in this post, let's see what readers think. New poll at the sidebar in which we ask whether one thinks the price of WTI will hit $50 by the end of May, 2017.

Updates

May 8, 2017: these stories are starting to remind of the Kardashians. A lot of fluff. All that matters: the numbers. The drawdown. And we see the drawdown numbers every Wednesday. Everything else is fluff.

May 8, 2017: CNBC joins in -- agrees that OPEC cuts have not succeeded; Saudi/OPEC mis-played their hand. Even another six-month extension won't help. I have no research staff and am a novice when it comes to the oil and gas sector. A few days ago I suggested that it will take 200 weeks to bring down US inventory to historical levels at the current rate of draw down. And now this:

"OPEC producers have under-estimated the volumes to be taken off the market," said Victor Shum, vice president at IHS Energy.

May 8, 2017: via Twitter --

May 7, 2017: it looks like Saudi Arabia have run the numbers and their storage terminals will still be overflowing at the end of 2017. They need to extend production cuts (wink, wink) while making up the difference with flooding the globe with oil from their storage terminals. Saudi Arabia now suggests they will need to extend production cuts beyond 2017.

May 7, 2017: having gotten caught with its siphon in its overflowing storage tanks, there are indications that Saudi Arabia is now going to actually cut crude oil exports. If so, most likely this is what happened: Saudi Arabia misjudged how much crude oil could be removed from storage based on IEA's optimistic forecast for increasing global demand. Whether they moved as much oil out of storage as they had wanted, seeing no improvement in price, and seeing that they had been caught in one big shell game, Saudi may be actually cutting exports. Ever since the Clinton administration, I've learned how important it is to closely parse announcements. When OPEC said they would cut production, OPEC did not mention anything about using the opportunity to make up the difference by shipping oil from storage. (Remember: the US is doing the same thing -- releasing oil from the SPR, but for very different reasons, and releasing oil from the SPR is of no consequence, the amount is so small that is being released over time.)

By the way, compare the graph at this post (US imported oil from Saudi Arabia) with this graph from the linked story above:

Yes, I know it takes 45 days for Saudi oil to reach the US.

May 7, 2017: less than 24 hours after the original post, Bloomberg had yet another article on the OPEC debacle. I doubt there will be anything new. The lede:

The benefits of OPEC's agreement to cut output have proved elusive. With less than three weeks to go before the group's next meeting, something is very, very wrong as far as oil producers are concerned. And they have no easy solution to put it right.

The graph at the link is pretty amazing:

• this past week, Brent fell to within 30 cents a barrel of its price before OPEC agreed to cut production (wink, wink) but not exports from crude oil storage
• even without that brief dip, Saudi Arabia is now earning less from its oil sales that it was before concluding a deal that was meant to kick prices up to $60/bbl
• part of the problem: Libya back on-line; Libya is exempt from any cuts and any ceiling limits (and Saudi Arabia is exempt from flooding the world with crude oil from storage terminals)
• the usual canard is repeated: "oil supply is still expected to lag demand by a healthy margin in the second half of the year, resulting in a significant reduction in excess inventory" (at the rate of the US crude oil drawdown last week, it will take 198 weeks to draw down the crude oil inventory in the US to historical levels)
• unfortunately the tea leaves all suggest global crude oil demand is falling, not increasing
• the IEA still projects annual average crude oil demand growth this year, 1.3 million bopd; the tea leaves suggest otherwise   

Original Post

Link here.

I'm only interested if there is anything new in the story -- something new that hasn't been posted on the blog in the past four weeks. Let's see:

• a rebound in US shale output and stubbornly-high stockpiles show the world's three-year glut isn't shifting (nothing new)
• meeting in Vienna, May 25; most likely OPEC will "keep the course"; the alternatives look even worse (nothing new)
• if OPEC cuts more, it is likely even more shale supplies might come along (not particularly new)
• "with OPEC already showing near-perfect compliance in delivering its pledged 1.2 million bopd production cut" -- same old tune
• OPEC based cuts on run-up in production
• some countries exempt from any cut and any ceiling
• Saudi Arabia caught siphoning off crude oil in storage to more than make up any production cut (wink, wink)
• IEA still predicts a rapid reduction in the supply glut in 2H17; in fact, at the rate of the US drawdown this past week, it will take 200 weeks for US storage to get back to historical levels
• global fuel stockpiles have actually increased during the first quarter, the IEA estimates (is this new? maybe)
• "in the US, crude inventories are dropping, but remain near record levels" -- the drop has been trivial; a rounding error
• "meanwhile, American production has roared back, growing by 523,000 bopd to the highest level in almost two years" -- EIA
• it seems like EIA and IEA are on different pages (nothing new)

Bullets #9, #10, and #11 -- most noteworthy.

Meanwhile, elsewhere Russia is "crowing" about cutting more than it agreed upon. Regardless of agreements, does this really matter:

• Under the deal, Russia pledged to reduce its average daily production gradually by 300,000 barrels to 10.947 million bpd from the October level of 11.247 million bpd.

Cutting from 11.247 million bopd to 10.947 bopd -- even before proposed cuts there was that much variation month-to-month. But I'm sure Russia is doing the same thing Saudi Arabia is doing: making up for cuts by taking crude oil out of storage. The whole thing is a shell game.

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Saudi Arabia's 2nd Trillion-Dollar Mistake -- Playing a Shell Game -- May 5, 2017

The stories now coming out: OPEC likely to extend production cuts but won't make the cuts deeper.

The initial cuts were minimal in the big scheme of things, and as we've seen, were easily made up by US shale and US Gulf of Mexico.

But now we learn that Saudi Arabia, and probably some/many/most of the others, have been playing a shell game. Saudi Arabia cut production (wink, wink) but more than made up for those cuts (wink, wink) by taking oil out of storage. In the process they actually increased exports to the US by 32% in February, 2017.

A 32% increase in Saudi imports for the US in one month is incredible (February, 2017, compared to February, 2016).