CRUDE OIL INVENTORY/’000 bbls (Week Ended 1/30/15)
Current: 413,060
Actual Build/(Withdrawal): 6,333
Economist Average Estimate: 3,940
Previous: 406,727
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ANALYST COMMENTARY
KLR Group
Demand
Demand of ~18.6 Mmbpd decreased ~9.1% w/w, and the four-week moving average decreased ~90 bps to ~3.8% higher y/y. Gasoline demand of ~8.4 Mmbpd was down ~6.4% w/w, and distillate demand decreased ~19.3% to ~3.7 Mmbpd. In ’15, we expect U.S. demand to increase ~1% y/y to ~19.2 Mmbpd.
Inventories
Composite inventories increased ~10.5 Mmbbls, versus the consensus estimate of a ~0.6 Mmbbls build w/w. API reported an ~8.4 Mmbbls increase in composite inventories w/w. Crude oil supplies grew ~6.3 Mmbbls, while consensus expected a ~3.3 Mmbbls increase and API estimated a build of ~6.1 Mmbbls. Gasoline stocks increased ~2.3 Mmbbls versus the consensus estimate of a ~1.2 Mmbbls draw w/w. API reported a build in gasoline stocks of ~2 Mmbbls w/w. Distillate inventories increased ~1.8 Mmbbls w/w, versus the consensus estimate of a ~1.5 Mmbbls draw. API reported an increase in distillate stocks of approximately 0.3 Mmbbls.
Cushing stocks increased ~2.5 Mmbbls w/w to ~41.4 Mmbbls, while API reported a build of ~2.6 Mmbbls. Midwest stocks grew ~2.9 Mmbbls to ~122.9 Mmbbls (~86% of capacity). WTI decreased ~$0.16 after the report release and is currently down ~$2.54 today at ~$50.51.
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.
CIBC World Markets
Today’s inventory report was bearish across the oil complex. The numbers largely confirmed the API report from last night, meaning that the numbers weren’t a surprise, but the notional builds were large nonetheless and the intraday losses in WTI were extended on the release.
Total US stocks increased to another an all time high. The cumulative build over the past four weeks have mounted to almost 31 mb, which is easily the largest four week build on record. Stocks at Cushing built by a sizable 2.9 mb last week despite outflows on Marketlink and the Seaway lines ramping up to new highs. Combined outflow on the lines averaged over 1 mbd for the first week on record. Marketlink reached new highs of almost 500 kbd, while the Seaway twin line showed a sharp WoW increase after the line was off for the majority of the previous reporting week due to planned work. Inventories at Cushing sit at over 58%. The historical relationship between storage utilization at Cushing and term structure suggests that either front spreads are oversold given current storage levels or that the market is pricing in large builds at Cushing over the coming weeks. The latter is likely the case.
Despite refinery turnaround season ramping up, aggregate runs increased by 288 kbd last week. The majority of the tick up came from the Midwest where the Lima refinery returned from an unplanned outage. Total US planned turnarounds are expected to nearly double to 980 kbd by mid month before peaking at 1.1 mbd in early March. The physical impact of strikes at nine US refineries this week has been minimal given that replacement workers have kept disruptions to a minimum. Any incremental impact will show up in the data released by the EIA next week.
East Coast crude imports fell to 420 kbd, marking the lowest level on record. With a fairly tight Bakken-Brent spread, which should, in theory, be discouraging railed barrels, it begs the question of where PADD 1 refiners are sourcing their crude. If refiners continue to run at the current clip, we would expect either larger stock draws, imports to rebound or the Bakken-Brent spread to widen over the coming weeks.
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