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U.S. Oil Supplies Rapidly Draining, As Demand Rises

Published 08/13/2020, 08:19 AM
Updated 07/09/2023, 06:31 AM

Are you ready to play the drain game? Demand is rising and supplies are falling. That will help continue the bull market in crude oil. The Energy Information Administration (EIA), in its weekly report said that “U.S. oil supplies are draining fast because of falling production and lower imports and a significant rebound in oil demand. Total demand in the U.S. spiked by 1.2 million barrels a day to 19.37 million barrels the best reading post-COVID."

Crude supplies had the largest three-week drop in history in the all-important Gulf Coast as the U.S. is feeling the impact of the OPEC-Plus production cuts. The drain in U.S. oil stocks may go global as International Energy Agency (IEA) said that global oil demand exceeded supply in June and that would imply that global oil stocks will drawdown for the rest of the year. So barring any major setbacks due to a second wave COVID 19 shutdown or a major stock market meltdown, the prospects for a year-end run-up in oil prices is looking extremely likely.

The EIA reported a 4.5 million barrel crude draw and that means U.S. supplies have drained by a stunning 22.5 million barrels in the last three weeks. The draw was even more impressive when you consider that we saw a 2.2 million barrel release from the Strategic Petroleum Reserve (SPR) as companies that used the reserve for emergency storage is taking the oil back because it is needed. Refiners were on fire as refinery utilization rose 1.4 percentage points to 81% of total capacity. On the East Coast, refinery utilization rates climbed to 71.8% of full capacity, the highest since August 2019, as reported by Reuters.

We saw both gasoline and diesel demand jump as well. Gasoline supply fell by 720,00 barrels as demand increased by 290,000 barrels a day to 8.883 million barrels a day. Distillate supplies thought soft in the complex, saw a surprisingly significant drop of 2.6 million barrels in supply. Distillate demand increased by 456,000 barrels week over week. One negative was a pullback in jet fuel demand, which is the reason that the IEA is reducing their demand outlook for overall fuels.

The typically negative International Energy Agency (IEA) revised down 2021 crude oil demand estimate by 240,000 bpd to 97.1 mln bpd mainly due to concerns about a second-wave of COVID and a darkening outlook of jet travel.

“The outlook for jet fuel demand has worsened in recent weeks as the coronavirus has spread more widely.” Still, they said:

“Our balances show that in June demand exceeded supply, and for the rest of the year there is an implied stock draw. However, ongoing uncertainty around demand caused by Covid-19 and the possibility of higher output means that the oil market’s re-balancing remains delicate.” That outlook is weighing a bit on markets but remember, the IEA typically underestimates demand.

We get the EIA natural gas report today, and we are expecting a 50 BCF build in supply. In the big picture, low natural gas prices are creating increasing demand. The EIA reported that more power generation from natural gas in the first half of 2020 than in the first half of 2019. That means that cleaner burning gas is replacing coal. The EIA says that natural gas-fired generation in the lower 48 states increased nearly 55,000 gigawatthours (GWh), or 9%, in the first half of 2020 compared with the first half of 2019. Natural gas was the fastest-growing source of electric power generation, according to data from the U.S. Energy Information Administration’s (EIA) Hourly Electric Grid Monitor. The increase in a natural gas-fired generation was the result of recent low prices and natural gas-fired power capacity additions, despite a 5% decline in total electricity generation. The decrease in electricity consumption resulted from reduced business activity as a result of COVID-19 mitigation efforts. Natural gas-fired generation from electric power plants reached record-high levels on July 28 as summertime heat began reaching its seasonal peak.

Latest comments

Great article, no political points. Just information to make your own decisions on future investments.. Thankyou !!
This is exactly what i believe as well
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