Crude: quality over quantity II

Checking in with that oil demand, the U.S. refining system is holding up its end of the bargain. We’ve topped 17mm b/d for the 4th time this year and have been averaging 17mm b/d of crude runs the past 6 weeks. All the while, we’re still drawing down stocks in products last week in addition to the 1.8mm barrels out of crude inventories. I say we go on our own with hunt outside of the Washington DC. Let’s chase down all of those peak demand theorists and burn them on the stake. Or at least make them buy us a steak. See, the past three year average of crude runs in April usually sees an average rise of 675K b/d in August. So that means that we’re going to be running our refineries well over 95% through that hole month and seeing if 18mm b/d is real. 

This is all in relation to the idea that we’re going to eventually erase some of the oversupplies of crude in our system too. It’s certainly setting a trend these past few weeks despite all the hype around increased U.S. production. That –1.8mm draw of crude yesterday came along even as we saw 3.5mm b/d from Canada and a nice recovery from the Saudis (+406K b/b) to 1.4mm b/d. Now maybe we should really start to think about how come Septem-ber we’re going to be looking with OPEC production cuts becoming a reality. All we need in the next few weeks is a rate hike from the Fed and a negative move in U.S. crude production in the Lower 48. It doesn’t have to be big or sustained, but anything negative is going to sound off the alarm and the sky will fall Chicken Little. Of course, there is a chance all of this doesn’t happen and crude supply stays high. Well, that would mean that the U.S. refining system can’t handle the aforementioned 17.7mm b/d through all of August and we’re caught way short on gas and diesel. In that case, the products would be the ones shooting through the roof and that’s going to really hurt the American consumer right between the billfolds. Now that might be enough to really raise some questions about how America is being run. All of this crude oil and not even a cheap gallon of commercial fuel to show for it all. I’m headed to DC in protest and I’m wearing my romper. 

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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.