A very bearish report, that saw further increases in crude oil inventories and that moved crude oil stocks to all-time-highs. Crude oil (NYSE: USO) prices dropped about $0.20/bbl after the report was released, then jumped back about $0.50/bbl from the bottom.
* Crude oil inventories increased by 9.5 million barrels.
* Gasoline inventories increased by 2.8 million barrels.
* Distillate inventories decreased by 700,000 barrels.
This is substantially worse than last week's EIA's inventory report which really shook the markets, at least until the Trump administration started to ante up the rhetoric against Iran. Whereas last week's increase in inventories could be explained by imports above normal levels, this week's increase occurs with imports about 500,000bpd below normal level.
Crude oil inventories are currently at all-time historical highs and are poised to increase even more as the refinery maintenance season approaches, unless imports are curtailed, in which case, inventories will still accumulate but outside of the U.S.
We think is just a matter of time before speculation starts circulating in the markets about the U.S. running out storage. We don't think this will happen as the Gulf Coast has plenty of available storage despite being at historical highs, and Cushing has been operationally at maximum capacity since the summer.
Production and Refinery Utilization:
* Domestic production stayed almost unchanged for the week.
* Production in the Contiguous United States (excluding Alaska) also remained virtually unchanged.
* Net imports fell by 1,340 mbpd compared to the previous week and are currently around 500,000bpd below normal. As the refinery maintenance season approaches, the logical choice would be to reduce imports even more to prevent further increases in domestic crude oil inventories. We are not expecting this to happen.
* Refinery utilization dropped to the mid 80's and could drop further.
* Cushing, OK inventories decreased by 700,000 barrels. We still believe that Cushing is essentially at maximum operating capacity.
* Gulf Coast inventories increased by 6.8 million barrels and are currently at all-time historical highs.
Inventories not only of crude oil, but also of refined products have been accumulating pretty aggressively since the end of last year, and currently, crude oil inventories are at all-time highs. As the refinery maintenance season approaches, crude oil inventories could pile up even more aggressively. Net imports would have to be curtailed very strongly going forward in order to restore inventories to a normal level.
We think is a matter of time before concerns start circulating in the market about the U.S. running out of storage. We don't think this is going to happen as the Gulf Coast has plenty of available capacity and incremental storage expansion is underway, but we think at some point this will weigh heavily on the markets.
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