Crude: bouncing back after a big draw

Well that really didn’t take much. Here we are, bouncing back after a big draw out of crude stocks on the EIA report. Funny what a 5.8mm barrel draw will do to a trading community. Maybe it was the draws across the board. Something that I’ve been hawking for a few weeks now. Or maybe it’s the reality that OPEC is really cutting back on production and the drop (-644k b/d) is going to continue. Perhaps it’s the demand that may not have peaked after all and is still going to rise because it really is only May. I know this is right about where the bottom of the range was ($46.00) and we’re making that run to the upside ceiling of $50.00. We all know that WTI and Brent are all stuck in a trading range, right? Maybe we’re all just playing the #BowWowChallenge and taking pictures of our trading and being bullish and it’s just a picture from 2006. I really don’t know. 

I’ll tell the teeming millions what I do know, oil is a pity party and all the hopeful are invited. After these stats yesterday, everyone focused on the crude draw, but everyone skipped the other things that a week ago were so important. U.S. crude oil production in the Lower 48 was up again, this week by 16K b/d and hit a high of 9.3mm b/d. That’s some 2015 numbers that were a precursor to our record high of 9.6mm b/d. There was only a slight draw in Cushing (-400K) and it’s still holding 66.3mm barrels, likely 75% of which is light sweet crude. And to focus on those imports, it was really only Iraq (-388K b/d) and the Saudis (-125K) from OPEC that made all the difference. In case anyone cares to think about what really changed yesterday to make traders turn on a dime, it was just that fair value wasn’t going to allow the market to dump prices past the support levels. When in doubt, turn it around. 

Don’t get me wrong, I love to be bullish and I think that we’re still headed back up to $60 by the end of the year. My issue is that we’re interpreting the wrong signals for the wrong reasons. It was like yesterday when I was so saddened by the death of “Big” from Rob and Big. Well until I realized it wasn’t the same Big from Rich and Big. Misplaced sympathy kiddies. Once I had it all figured out, I moved on with my day and focused on the Comey firing and the EIA stats. It was then I realized that both of these causes more contention with the wrong people for the wrong reasons. Comey getting fired should have caused the Dems to celebrate because the man practically sunk Hillary’s Presidential bid. The EIA stats are so far only a one week wonder. Sure, there was a huge draw, but with refinery runs dropping 418K b/d last week to 16.8mm b/d isn’t a winning combination for continued draws. The imports last week that were the difference maker saw us increasing our imports from Nigeria by 148K b/d, so maybe this is just a balancing act for crude blending. And although the increase in gasoline demand by 252K to 9.4mm b/d, it still leaves us trailing last year with auto sales declining significantly. I’m still thinking higher, but we’re reaching for straws with nothing left in the milkshake. We need more reasons and I have plenty. The problem is everyone has to believe in the same thing at the same time. A long time. 

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About the Author

Carl Larry is Director of Business Development Consultant for Oil and Gas at Frost & Sullivan. Follow him on Twitter (@oiloutlooks) or on his website.