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Crude Oil Inventory Levels

By Phil FlynnCommoditiesJun 07, 2017 09:00AM ET
Crude Oil Inventory Levels
By Phil Flynn   |  Jun 07, 2017 09:00AM ET
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Night Moves

An active night for global markets including a terror attack in Iran, the takeover of Banco Popular (DE:POPD) in Spain, not to mention the American Petroleum Institute Report that showed a big drop in crude supply but big increases in gasoline and distillates.

Fox News reports that ISIS has claimed its first attack in Iran after suicide bombers and gunmen stormed into Iran's parliament and targeted the shrine of Ayatollah Khomeini, killing a security guard and wounding 12 other people, with the siege at the legislature still underway. The attack comes just days after Saudi Arabia, the UEA and Egypt cut diplomatic ties with Qatar in part over its dealings with Iran. Talks to ease the tension are being led by Kuwait and the market seems less concerned about a possible breakdown of the OPECX production cut agreement.

Markets were initially rattled on reports that Spain’s biggest bank, Santander (MC:SAN), came in and bought the failing Banco Popular for a whopping one euro. The problems with Banco Popular were a worry for markets and after European officials decided the bank was close to being insolvent, they paved the way for the overnight sale. The markets view this as a victory for post financial crisis reforms using private money as opposed to taxpayer money to bail out banks, but we may not be out of the woods yet.

Stock holders of Banco Popular are left with nothing and bond holders take a big haircut. This reminds me of the attempt to save MF Global by selling them in the middle of the night to Interactive Broker but the sale fell apart when it was determined there was a lot of customer money missing. Reports say that Santander will ask investors for around €7-billion (£6.1 billion) of fresh capital to cover the cost of bolstering Popular holding that lost billions of euros on risky property loans. One wonders if this system would work if many banks were failing, but right now this will be a good test.

Crude oil prices rallied into the American Petroleum Institute (API) report on talk that we would see a big drop in crude supply. That was correct but the increase in gasoline and distillate raised concerns about product demand once again. The API reported crude supply fell by 4.62-million-barrels last week and a twice as large fall as expected 1.56 million barrels drop in the Cushing, Oklahoma delivery point. The API though reported an equally large 4.08 million barrel increase in gasoline supply and a 1.75 barrel increase in distillate supply. The market will now await the Energy Information Admintation (EIA) supply report to decide oil's next move.

The EIA reported: “U.S. crude oil production in 2018 is forecast to average 10 million barrels per day, well above the previous annual record production level of 9.6 million barrels per day set in 1970.” “Increased drilling activity in U.S. tight oil basins, especially those located in Texas, is the main contributor to oil production growth, as the total number of active rigs drilling for oil in the United States has more than doubled over the past 12 months.”

Gasoline/Refined Products: “U.S. gasoline prices are forecast to be about 10% higher this summer than last, but higher pump costs aren’t expected to cut into vacation driving plans, as summer gasoline demand is expected to reach a record high.” “Stability in crude oil prices along with high gasoline inventories since the beginning of the year have helped U.S. retail gasoline prices remain unusually stable, with the average price for regular gasoline increasing just 4 cents a gallon from January to May, much lower than the average 39-cent increase seen over these months over the previous five years.”

Natural gas: “After declining during 2016, U.S. natural gas production is forecast to increase in both 2017 and 2018.” “U.S. natural gas exports are expected grow at double-digit rates both this year and next year, averaging 10 billion cubic feet per day in 2018.”

Electricity: “The amount of U.S. electricity supplies from natural-gas fired generation is expected to decline this year in response to higher natural gas prices, as generation from coal, hydropower, wind, and solar all increase.”

Coal: “U.S. coal production is getting a boost from higher coal exports and increased electricity generation at coal-fired power plants.”

“The amount of electricity produced by coal-fired generating units is forecast to increase this year in response to higher costs for natural gas-fired power generation.”

Renewables: “Wind, solar, and other non-hydro renewables are expected to account for nearly 10% of U.S. electricity generation during 2018, as total generation by these energy resources continues to rise." The EIA did make news with their Short Term Energy Outlook released yesterday.

Oil must also worry about a strike. Dow Jones reports that Norwegian oil workers will hold wage talks with their employers on Friday to avoid a strike that could cut 10 percent of crude output from western Europe’s largest producer.

AAA reports that, “Making an informed choice about oil changes just got easier, thanks to new research on the quality of engine oil. AAA found that synthetic oil outperformed conventional oil by an average of nearly 50 percent in its independent evaluation, offering vehicles significantly better engine protection for only $5 more per month when following a factory-recommended oil change schedule. To protect vehicle oil protects critical engine components from damage and AAA found that synthetic engine oils performed an average of 47 percent better than conventional oils in a variety of industry-standard tests,” said John Nielsen, AAA’s managing director of Automotive Engineering and Repair. “With its superior resistance to deterioration, AAA’s findings indicate that synthetic oil is particularly beneficial to newer vehicles with turbo-charged engines and for vehicles that frequently drive in stop-and-go traffic, tow heavy loads or operate in extreme hot or cold conditions.” Just something more to think about.

Reuters reports that the global economy is on course this year for its fastest growth in six years as a rebound in trade helps offset a weaker outlook in the United States, the OECD forecast on Wednesday.

The global economy is set to grow 3.5 percent this year before nudging up to 3.6 percent in 2018, the Paris-based Organization for Economic Cooperation and Development said, updating its forecasts in its latest Economic Outlook.

That estimate for 2017 was not only a slight improvement from its last estimate in March for 3.3 percent growth, but it would also be the best performance since 2011.

Crude Oil Inventory Levels

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Crude Oil Inventory Levels

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