Oil Out Like a Lamb
Crude oil prices are going out like a lamb this March as hedge funds look to book profits from their largest net long position since May, 2015. Hedge funds like to book profits at the end of the month because they get paid on the profits they made during the month, not to mention the first quarter of 2016, which ends today. Crude prices have risen about 50 percent since mid-February. It seems the funds used yesterday’s initial spike after the Energy Information Administration crude supply number came in short of expectations to take some profits off the table.
Still the short term market is worried about over supply because oil supply crept to a record high. The Energy Information Administration (EIA) reported that commercial crude oil inventories increased by 2.3 million barrels from the previous week which was less than expected but still at a near record high of 534.8 million barrels. Behind that number there are more sign that we are going to, at some point, change the trend of rising supply.
U.S. crude oil production fell again last week. As I told the Investors’ Business Daily (IBD), “While U.S. production is down about 6% from a peak of 9.6 million barrels a day in June 2015, Flynn noted it has remained stubbornly above the 9 million-barrel mark. Projects that began years ago in the Gulf of Mexico are starting to bear fruit, and Alaska has seen a slight uptick in production, offsetting some of the decline in shale production, he said. The IBD said that the EIA lowered its 2017 U.S. oil production outlook earlier this month, and now sees oil production falling by 480,000 barrels per day to 8.19 million barrels vs. February’s estimate for a drop of 230,000 barrels per day.
We are also seeing demand for oil surge. The EIA reported that refining capacity utilization hit a 11-year high for this time of year, rising two full percentage points from the previous week to 90.4%. This was a surprise because this is a time when refiners are supposed to be cutting runs but it seems they are responding to strong demand.
Gasoline supply fell by 2.5 million barrels as demand is running at a near record 9.4 million barrels per day, up by 5.0% from the same period last year. Gasoline production decreased last week, averaging over 9.4 million barrels per day.
Refiners seem to be gearing up for strong farmer demand for diesel as they ramped up production to 4.9 million barrels per day. Still supply fell by 1.1 million barrels.
Yet with stability in the global market we could see that supply evaporate. Reuters News reported that Iran is expected to add another half a million bpd of oil within a year, Fatih Birol, head of the International Energy Agency, told Reuters. But elsewhere in Asia, the sustained weakness in oil prices has suppressed upstream oil and gas production, consultancy BMI Research said in a report on Thursday. Weaker prices are, "limiting opportunities to stem natural declines in aging assets," the report said. China's still-growing demand could help absorb the excess. China is set to import 7.5 million bpd this year, overtaking the United States as the world's biggest crude importer, a vice president of Unipec, the trading arm of Sinopec said.