It is the oldest story in the commodity world, supply versus demand. Yet that story now has been more complicated than perhaps ever as Covid-19 concerns about demand destruction temporarily and possibly permanent puts tightened global supply on the back burner.
Global oil supplies tighten at an incredible pace, yet fears that the demand recovery will falter, flipping us back to an oversupplied market, is keeping prices anchored. We had a massive supply drop in crude oil, gasoline and distillate as reported by the Energy Information Administration (EIA) that was caused in large part by Hurricane Delta. Still, it may cause some people to miss the larger trend of tightening national and international supplies.
The International Energy Agency oil market report was released yesterday and is showing that in the fourth quarter of 2020, we are on pace to see a massive oil supply deficit of 4.1 million barrels a day, as pointed out by HFI Research.
The IEA says excess oil inventories for Organization for Economic Co-operation and Development (OECD) countries are pegged at 209.1 million barrels, this means that the deficit in Q4 will eliminate all of the surpluses and more.
We saw significant drops in production in the U.S. due to Hurricane Delta and reductions in refinery runs leading to big drops in supply despite more oil released from the Strategic Petroleum Reserve. The market tried hard to chalk it all up to the storm but there were signs in the numbers that there was something more significant going on if you look at monthly and weekly trends.
The Energy Information Administration reported that commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) fell by 3.8 million barrels from the previous week. At 489.1 million barrels, U.S. crude oil inventories are still about 11% above the five-year average for this time of year but working off the surplus. That included a 1.159-million-barrel release from the SPR.
On the other hand, total motor gasoline inventories decreased by 1.6 million barrels last week and now 1% below the five-year average for this time of year.
Distillate fuel inventories plunged by 7.2 million barrels last week and are about 19% above the five-year average for this time of year. Yet a jump in distillate demand was encouraging and reflective of farmers doing their harvest. Distillate demand was up 307,000 barrels a day.
US production fell by 500,000 barrels a day as the storm shut in the Gulf of Mexico and refining runs plunged as refiners batten down the hatches. The EIA said that U.S. crude oil refinery inputs averaged 13.6 million barrels per day during which was 277,000 barrels per day less than the previous week’s average. Refineries operated at 75.1% of their operable capacity last week. Gasoline production decreased last week, averaging 9.2 million barrels per day. Distillate fuel production decreased last week, averaging 4.3 million barrels per day. U.S. crude oil imports averaged 5.3 million barrels per day last week, down by 447,000 barrels a day.
Winter wonder or wondering if winter is near. Natural gas snapped back again as frost and wind chill will be soon entering the vocabulary. The EIA also reported a more friendly report than the consensus. According to EIA estimates, working gas in storage was 3,877 Bcf as of Friday, October 9, 2020. This represents a net increase of 46 Bcf from the previous week. Stocks were 388 Bcf higher than last year at this time and 353 Bcf above the five-year average of 3,524 Bcf. At 3,877 Bcf, the total working gas is above the five-year historical range.