EIA reported a 9.527 million bbl storage build today, catapulting US crude storage to an all-time high of 518.12 million bbls.
This EIA storage report brings the total US commercial inventories to 1,359.9 million bbls. This is 11.1 million bbls higher than the previous week, 49.8 million bbls higher than last year, and 249.7 million bbls higher than the five-year average.
The main culprits for why we saw a 9.527 million bbls storage build last week were due to higher imports of 8.5 million b/d and lower refinery runs of 15.4 million b/d. The build was primarily focused in PADD 3, where inventory rose by ~7 million bbls week over week to 274 million bbls. This storage report takes the total build on the Gulf Coast to 27 million bbls in 2017.
There are some important things we are observing in the market to explain the storage build. One of the main culprits is due to the rally in the heavy/medium sour market from mid-March and onwards. Heavy/medium sour grades have rallied $-1.37 per barrel this week so far, and is trading at the highest since December 2015. This is likely forcing some market players to stock up on inventory before the refinery maintenance season is over.
If this logic is correct, we expect imports following March to be materially lower.
In addition, we believe that EIA's estimate of US crude production is likely off by a factor of 100k b/d. Our estimate pegs US crude (NYSEARCA:USO) production closer to 9.1 million b/d versus the 8.977 million b/d EIA reported. A combination of higher imports, lower refinery runs, and higher US oil production are contributing to the storage builds we are seeing in US crude storage.
Energy Aspects recently estimated that the global storage imbalance will be around 300k b/d for the first quarter, before quickly accelerating to 1 million b/d. For US crude storage however, the bulk of the rebalancing won't take place till April. It's unlikely that from now until April that we see meaningful storage draws in the US.
Lastly, preliminary estimates are showing that OECD storage for January saw a build ranging from 20 million bbls to 50 million bbls. The impact was the result of the ramp in OPEC production in November prior to the OPEC and non-OPEC production agreement. Production cuts officially took place in January, and it won't be felt in the physical supplies until Q2 2017. We will be updating our figures going forward.
Due to the likely event that OECD storage saw a build in January, the rebalancing time frame could be delayed to July this year as storage continues to rebalance. Our price estimate of $70 by Q3 2017 however doesn't change as the market is forward looking, and most physical players look at the imbalances ahead rather than the current storage in place.
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