Give me those Old Time Fundamentals
Oil prices had its biggest up move of the year, rising 3.3% on lower supply and higher demand. I don’t mean to be so fundamental about the fundamentals, but in truth, that's why we soared!
Oil prices surged even before the American Petroleum Report (API) reported another massive crude oil crude withdrawal. The 10.23-million-barrel draw, if confirmed by the Energy Information Administration (EIA), means that US oil supply is down almost 55 million barrels since the end of March, even as the Strategic Petroleum Reserve added over 13 million of barrels of oil into the marketplace.
The API brings the total inventory for crude oil in 2017 to a net draw of 7.534 million barrels, the first net draw for 2017 since January according to Oilprice. So we see that OPEC and non-OPEC cuts do matter. As I told Marketwatch, the API reported crude supply draw erases the myth that shale can offset OPEC and non-OPEC cuts barrel for barrel.
This comes as we get reports of surging oil demand in China and in the US against a back of more pledges of cutbacks and warnings for oil service companies and producers that shale output may have topped out. David Lesar, Halliburton (NYSE:HAL) CEO and President, said in an earnings call that, “rig count growth is showing signs of plateauing and customers are tapping the brakes.” Anadarko Petroleum’s Al Walker, the company’s chief executive officer, cited, “current market conditions [that] require lower capital intensity given the volatility of margins realized in this operating environment.”
China’s economy is growing faster than even the Chinese government predicted and that is raising the forecast for Chinese oil demand. Reports show that China oil demand is expected to rise by 400,000 barrels as its own domestic production plummets as those Chinese teapot refineries run hard.
Zhang Haichao, vice president of SINOPEC Group (HK:2386), told Reuters that Chinese crude oil imports are expected to exceed 400 million tons this year. China crude imports are running 13.8 percent above a year ago coming in at .8.55 million barrels of oil a day.
The UPI also reported yesterday that, “A militant attack on a crude oil pipeline in Nigeria has sidelined more than 100,000 barrels of oil per day," the head of a state oil company announced. Maikanit Baru, the head of the Nigerian National Petroleum Corp., said as-yet identified saboteurs caused a breach on a major transit artery, curbing 150,000 barrels of oil per day. The rupture from the Trans-Niger pipeline came as parties to a committee monitoring a production agreement coordinated by the Organization of Petroleum Exporting Countries, of which Nigeria is a member, met to consider its impacts.
Today we will await the EIA to see if this surge in US oil demand continues. Surging US gasoline and diesel demand has come back with a vengeance after many thought that US demand had strictly changed, some of the demand numbers were under reported or influenced by transitory factors and the data looks like it is going to make up for lost time.
US oil production numbers will be closely watched as well to see if there is sign of sputtering output. We are predicting that US shale output will soon start to disappoint. High decline rates and uncompleted wells will start to reduce oil output expectations. API said gasoline inventories rose 1.903-million-barrel build for the week ending July 21, compared to analyst expectations that inventories for the fuel would fall by 1.25 million barrels.
Platts is reporting that the US Treasury Department is crafting sanctions which would prohibit the import of Venezuelan crude oil into the US, one of several sanctions options the White House is considering in response to an expected vote Sunday in Venezuela, an administration source said Tuesday. But the Trump administration, which has studied the impact of the potential crude oil import sanctions on the US refining sector, is not expected to impose Venezuelan oil sanctions, at least in the near term, the source said. "Treasury is preparing them, but that doesn't mean they'll implement them," the source said.