Crude: Cushing cushion?

March 27, 2018 08:00 AM


Crude oil prices dipped as trade war fears went away after a private report that appears to indicate that oil supplies may see a big increase this week. Genscape, the widely followed energy market data and intelligence company, reported that oil supply in Cushing, Okla., was up 2.18 million barrels last week. The increase and the fact that some of the Geo-Political concerns did not actually blow up into a supply disruption over the weekend led to a correction in the price of crude.

Still, with refining margins on the rise and a tightening global oil market, a one-week build will not be enough to break the oil markets' upward momentum. Refining margins were higher across the board in the United States last week, as refined products price gains outpaced a climb in crude supply costs, an analysis of S&P Global Platts data showed Monday. Oil should mount a comeback even though there may be some trepidation about this week’s crude data. Global demand continues to rise as OPEC is still resolved to keep oil on the upswing and not allow another glut to grow.

Last week Saudi Arabian Energy Minister Khalid al-Falih proposed to keep production cuts in place to get supplies back to the seven-year average, as opposed to the five-year average, which would call for an even larger reduction of oversupply. Of course, he may be playing with fire as the risk of over-tightening the market leading to a price spike that could hurt global growth may be increasing. Still, that prospect is down the line and not to be worried about as we see refiners ramp up production to meet demand. 

This comes as the Energy Information Administration feels compelled to defend their data on oil production, as they are getting a lot of flack from people inside and outside of the industry. The EIA explains why they feel that data that is coming out of the Texas Railroad Commission, which is showing much less production, is behind.

The EIA writes that, “Crude oil and lease condensate production data for Texas, published by EIA in its Petroleum Supply Monthly (PSM) and by the Texas Railroad Commission (TRRC), reflect differences in the treatment of incomplete and lagged data. Data published by state agencies are often incomplete when first published, because of a combination of late reporting and processing delays."

TRRC’s most recent report (published March 2018, with estimates through December 2017) is consistent through January 2017 with production estimates in the PSM, but, after January, the two sources diverge. This divergence increases for more recent months: EIA’s most recent production estimates for Texas, published in the PSM on February 28, 2018, show Texas’s crude oil production reaching 3.93 million barrels per day (b/d) in December 2017. TRRC’s values show production at 2.99 million b/d in that same month.

EIA develops state-level production estimates for Texas based on its EIA-914 survey. The EIA-914 survey for oil production was established in 2015, in part to make up for the deficiencies of estimating based on initial state agency reports. EIA monthly oil production volumes are different from the Texas Railroad Commission volumes initially, but as time passes, these differences diminish as TRRC updates and revises its data. EIA's methodology anticipates and accounts for these expected revisions.

So, there you have it. Yet, it still does not fully answer the question, why U.S. oil inventories are falling as production keeps rising? Oh yeah, maybe it's demand. Or maybe the EIA will have a downward production revision in the future as well.

Bio-diesel traders and ethanol traders are getting geared up for the U.S. planting Intentions report the kick off to the U.S. grain season. Dow Jones is looking for U.S. Grain, Soybean Planting (million acres).

Natural gas is looking good for a bounce technically but awful fundamentally. Look for the weather rally to end soon. Gasoline is on the rise. My buddies at GasBuddy report that, “As March fades into the sunset, so too are the low gasoline prices as the national average rose nearly six cents per gallon in the last week to $2.60, according to GasBuddy, which surveys nearly 135,000 gas stations nationwide. Gas prices advanced in all but one state, Ohio, but prices began to surge even there Monday morning.”

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.