Actual Build/(Withdrawal): 10,303
Economist Average Estimate: 3,888
Demand of ~19.7 Mmbpd decreased ~0.6% w/w, though the four-week moving average increased ~120 bps to ~4.6% higher y/y. Gasoline demand of ~8.6 Mmbpd was down ~3.2% w/w, and distillate demand decreased ~5.3% to ~4.1 Mmbpd. In ’15, we expect U.S. demand to increase ~1% y/y to ~19.3 Mmbpd.
Composite inventories increased ~8.6 Mmbbls, versus the consensus estimate of a ~0.5 Mmbbls draw w/w. API reported a ~3.1 Mmbbls increase in composite inventories w/w. Crude oil supplies grew ~10.3 Mmbbls, while consensus expected a ~4 Mmbbls increase and API estimated a build of ~2.9 Mmbbls. Gasoline stocks were flat w/w versus the consensus estimate of a ~2 Mmbbls draw. API reported a build in gasoline stocks of ~0.5 Mmbbls w/w. Distillate inventories decreased ~1.7 Mmbbls w/w, versus the consensus estimate of a ~2.5 Mmbbls draw. API reported a decrease in distillate stocks of ~0.3 Mmbbls.
Cushing stocks increased ~0.5 Mmbbls w/w to ~49.2 Mmbbls (~58% of capacity), while API reported a build of ~1.2 Mmbbls. Midwest stocks grew ~3.3 Mmbbls to ~133.3 Mmbbls (~94% of capacity). WTI decreased ~$0.60 after the report release and is currently down ~$0.55 today at ~$49.95.
Thesis (as of January 13, 2015)
We expect Brent/NYMEX $62.50/$57.50 oil prices this year and $85/$80 next year. In our view, the negative supply implication of lower global oil resource capitalization over the next two years, evident in the U.S., supports a long-term Brent/NYMEX oil price forecast of $100/$92.50. A long-term Brent/NYMEX $100/$92.50 oil price is sufficient to generate an industry norm ~5% return on invested capital.
We believe from Saudi’s perspective, the magnitude of the necessary supply reduction, largely attributable to robust growth in U.S. tight oil, rendered the role of swing producer less economic than maintaining output and allowing oil prices to fall meaningfully below equilibrium in the near-term.
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.