CRUDE OIL INVENTORY/’000 bbls (Week Ended 12/12/14)
Current: 379,942
Actual Build/(Withdrawal): (847)
Economist Average Estimate: (2,213)
Previous: 380,789
Click here for the chart with five year averages.
Click here for an archive of EnerCom’s Inventory Reports
ANALYST COMMENTARY
**All notes from 12.17.14**
KLR Group
Demand
Demand of ~20.5 Mmbpd increased ~5.2% w/w, and the four-week moving average increased ~170 bps to ~4.3% higher y/y. Gasoline demand of ~9.4 Mmbpd was up ~9.6% w/w, and distillate demand increased ~22.3% to ~4.2 Mmbpd. In ’14, we expect US demand to increase fractionally y/y to approximately 19 Mmbpd.
Inventories
Composite inventories increased ~4.2 Mmbbls, versus the consensus estimate of a ~0.3 Mmbbls draw w/w. API reported a ~3.7 Mmbbls increase in composite inventories w/w. Crude oil supplies drew ~0.8 Mmbbls, while consensus expected a ~2.3 Mmbbls decrease and API estimated a build of ~1.9 Mmbbls. Gasoline stocks increased ~5.3 Mmbbls versus the consensus estimate of a ~1.8 Mmbbls build w/w. API reported a build in gasoline stocks of ~2.8 Mmbbls w/w. Distillate inventories decreased ~0.2 Mmbbls w/w, versus the consensus estimate of a ~0.2 Mmbbls build. API reported a decrease in distillate stocks of ~1 Mmbbls.
Cushing stocks increased ~2.9 Mmbbls w/w to ~27.8 Mmbbls, while API reported a build of ~2.7 Mmbbls. Midwest stocks grew ~5.5 Mmbbls to ~104.8 Mmbbls (~88% of capacity). WTI increased ~$1.45 after the report release and is currently up ~$0.70 today at ~$56.65.
Thesis (as of October 13, 2014)
Our long-term Brent oil price expectation is $100, while our long-term NYMEX price forecast is ~$92.50. Global oil fundamentals suggest a need for the OPEC Gulf states (Saudi Arabia, UAE, Kuwait) to lower output a combined ~1.25 Mmbpd next year to maintain market balance assuming the current level of geopolitical production disruptions.
Intrinsic to our forecast is a Brent/WTI spread of $7.50 necessary to incentivize the evacuation of Williston Basin crude to the East/West Coasts by rail. We believe pipeline transportation to the Gulf Coast is the marginal connectivity mechanism between interior NAM and the Gulf Coast, while coastal crudes should generally trade at a several dollar discount to Brent to displace remaining lighter grade crude imports (East Coast) and partially displace medium grade crude imports (Gulf Coast).
Further, the feedstock price advantage provided by a several dollar coastal crude discount to Brent supports growth in domestic refined product exports, and contributes to maintaining market equilibrium between WTI and Brent.
CIBC World Markets
The EIA released fairly soft oil storage numbers. Total US stocks drew by 850 kbd, but inventories at Cushing increased by almost 3 mb, which is the largest build that we’ve seen all year. The large build is likely a function of logistics given that the Flanagan South pipeline continues to ramp up and volumes have reached fairly robust rates of over 360 kbd, while the start up of the Seaway twin pipeline remains sluggish and is still undergoing linefill (the line should be in operation by late this month or early next). Other outflow from Cushing has been low over the past two weeks, volumes on Seaway increased slightly WoW, but volumes are still down by 150 from highs seen late last month.
Total refinery runs fell by 326 kbd on the week, largely led by the Gulf region. That said, outright runs held above 16 mbd for the third consecutive week and utilizations remain elevated at 93.5%, which is still well above seasonal norms of closer to 85%. Runs should remain strong over the coming months as long as margins remain supportive. Planned CDU maintenance is expected to be light over much of 1H’15. Imports from Nigeria and Angola have more than doubled over the past two weeks to 323 kbd. It has, over recent weeks, been cheaper for East Coast refiners to import waterborne barrels than to rail them from the Bakken. Imports into the Gulf were lower WoW as a result of significant decreases in receipts from Mexico, Venezuela, Kuwait.
Gasoline stocks surged by a massive 5.3 mb. Both gasoline and distillate stocks are tight in the Midcontinent, but elevated regional refinery runs should help to rebuild inventories (we saw a sharp increase in gasoline stocks of 2 mbd this reporting period). Total US gasoline stocks are ample on both an outright basis and on a day of forward demand cover basis. US wide distillate stocks have bounced from the recent lows, but stocks in the Central Atlantic (PADD 1B, which includes New York Harbor) fell back below 20 mb last week, which is inline with the five year low. Distillate stocks are low on a days of forward cover basis.
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.
