The fundamentals of the petroleum complex are getting frosty. Oil prices hit another 2 and a half years high before closing lower after the record-breaking run of U.S. oil exports ended and U.S. oil exports suddenly got frozen out. In Saudi Arabia the crackdown on corruption and quest for power turned even colder after Saudi authorities froze the bank accounts of the former Saudi Crown Prince Mohammed bin Nayef. While oil supply surprisingly rose last week, oil products plunged, a concern as we are supposed to get our first arctic blast of winter as natural gas and distillate supplies are below normal for this time of year. It is a cold world and it is only going to get colder.
Oil had a wild session. It was not sure whether it wanted to focus on the surprise 2.237-million-barrel increase in crude oil supply or the very bullish 3.312 million barrels drop in gasoline supply and the 3.359 million barrels drop in those all-important distillates. Oil also saw some support when the Bureau of Safety and Environmental Enforcement (BSEE) reported that the Coast Guard and the Bureau of Safety and Environmental Enforcement responded to an oil platform fire in the Gulf of Mexico, Wednesday at the Shell l Enchilada platform approximately 112 nautical miles south of Vermilion Bay, Louisiana.
The crude build was a surprise after U.S. oil exports fell from a record of over 2 million barrels a day to only 900,000 a day. U.S. oil production should rise over the next few weeks and production hit a 5-yr high of 9.62 million barrels a day. While that is impressive it is still well below where the EIA said we would be. That is a misread that has longer-term ramifications for many shale producers. Many shale producers will hedge but many are so far underwater it might not make much of a difference to their bottom line. This could set the stage for a rash of mergers and acquisitions in the shale space, but they better hurt as they are already well below the demand growth curve.
U.S. demand is surging, rising 2 million barrels a day to a whopping 21.3 million barrels per day. That was even as U.S. export demand fell by 560,000 barrels a day. U.S. refinery runs are smoking, rising by 1.55 last week.
Gasoline prices at the pump will still rise as ready to use ‘gasoline’ stocks fell 5.3MB this week pushing inventories below the five- year average. Distillate supply fell as farmer harvest demand kept things moving along but the refiners are going to have to continue to run crude to keep up with demand and replenish the supply. Demand increased 952,000 barrels a day a number that will go higher after winter shows up. And it is here! The first arctic blast.