Crude oil inventories: Ups and downs

January 26, 2017 08:32 AM
Daily Energy Markets Report

Inventories up, and inventories down. Crude oil prices are conflicted about rising U.S. oil inventories versus a dramatic drop in global oil inventories. While the Energy Information Administration (EIA) reported a 2.8 million barrel increase, a report by Bernstein Energy is showing that global oil inventories have fallen by 24 million barrels to 5.7 billion barrels in the fourth quarter of last year from the previous quarter (or 60 days of global oil consumption). It is obvious that we are seeing rising global oil demand against a backdrop of record compliance to OPEC production cuts. With the Dow breaking 20.000 after an extreme period of sideways movement, the odds are high that both the stock market and demand expectations for oil will move substantially higher.

While we have not yet seen $60.00 oer barrel on WTI because of a strong dollar and a seasonal drop in U.S. refining runs; and we are still on track to target that lofty level and longer term even higher. The decline in global oil inventories, as well as an upside breakout in the stock market, gives me more confidence repeating the point that crude oil prices have probably seen their low for this year. While black swan events can always change that outlook, from what I can see on the rising demand and shirking supply picture, this market should move higher.

So, while the EIA headline oil number was up, we continue to see supply in Cushing, Okla., go down There was some concern about the increase in oil products. A big 6.8 million surge in gasoline supply have some worried about exchanging an oil glut for an oil glut. I would not be too concerned about that as the upside breakout in the stock market should mean that record demand for gasoline will continue in the new year. The distillate inventories were actually a bit supportive as they increased by only 75,999 Bbarrels.

I had a lot of response to my Keystone/Dakota pipeline report from yesterday, and I thank you. Many share my views, including the U.S. Chamber’s Institute for 21st Century Energy, who applauds the long-awaited attention to American energy infrastructure. Karen Harbert, president and CEO of the U.S. Chamber’s Institute for 21st Century Energy, issued the following statement today regarding President Donald Trump’s announced Executive Orders on accelerating infrastructure: “For too long, private infrastructure investment has been held hostage by government interference driven by fringe interests. Today’s Executive Orders on the Dakota Access pipeline and Keystone XL pipeline demonstrate that we finally have an administration that is serious about putting American energy to work for the entire economy.”

Harbert goes on to say, “The Keystone XL pipeline was under review for an unprecedented nine years and the Dakota Access pipeline was 90% completed when both projects were stopped in their tracks for political purposes, sending a chilling signal to investors around the world. These two projects will create good American jobs and improve access to affordable energy. “Other Executive Orders signed by the President are a recognition of how lengthy and burdensome the regulatory and permitting process has become for critical infrastructure and manufacturing projects. We are hopeful that these reforms will provide the certainty and timeliness required for capital investment. “We look forward to a renewed focus on building much-needed energy infrastructure and stand ready to assist in getting projects underway.”

The natural gas report comes out today. This market is still an upside accident waiting to happen. Even with about the same amount of heating degree days as last year, we are burning through a lot more gas. Look for a 125 bcf withdrawal from supply.

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.