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Data Download: OPEC Finally Delivers (Less)

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Includes: BNO, DBO, DNO, DTO, OIL, OILK, OILX, OLEM, OLO, SCO, SZO, UCO, USL, USO
by: Scott Anderson
Scott Anderson
Special situations, oil & gas, energy, natural resources
Summary

OPEC Exports to US decline 900,000 barrels a day over last 8 weeks.

US Stocks of "Primary Oils" down 159 million barrels from peak.

32 of last 35 weeks have been draws averaging 4.5 million barrels a week.

US oil glut could be gone in 2018.

Is it just being transferred to less visible markets?


Every week after the EIA releases their Weekly Petroleum Status Report I download the updated files, consolidate them, and ultimately link them to a simple excel dashboard file which you can download for free at Excel-Data-Junkies.com. Open it up to follow along below, then let’s discuss it in the comments section below. For a methodology review take a look the intro “Data Download”.

Headline: OPEC Finally Follows Through?

At the end of 2016, amid much fanfare OPEC/NOPEC announced a 1.6M bpd production cut starting in 2017. I had no great insight into OPEC/NOPEC production or the supply chain that moves it, but I figured that the US was roughly 25% of the market, so it made sense that about 25% of the cut, or 400,000 bpd would ultimately start showing up (or rather not show up) in the US Weekly Petroleum Status Report. I figured I’d give them a pass for the first 3 months to account for shipping time and inventory drawdowns and then I sat and waited…and waited...

After averaging 3.022M b/d of exports to the US in 2016, week after week and quarter after quarter, OPEC exports to the US surpassed 2016 numbers. While I had penciled in a 400,000 b/d reduction, through the first 33 weeks of the year OPEC exports to the US were actually up 178,000 bpd YOY at 3.200M bpd. Penciling that out (33 weeks x 7 days/week x (400,000+178,000) and OPEC had sent about 134M barrels of oil to US shores than I had estimated after the announcement. Now, I can’t say that I was surprised. Talk is cheap after all, and OPEC’s “Real Cartel” card had been pulled long before last winter.

Until now... Maybe.

OPEC

After averaging 3.2M bbl/d of exports to the US through the first 33 weeks of 2017, OPEC exports to the US have averaged just 2.3M bbl/d for the last 8 weeks. Of that 900,000 bpd reduction about half is Saudi Arabia (-432) with Iraq(-221) and Venezuala(-230) making up the vast majority of the remaining cuts. To be fair, at first I just chalked this up as supply disruptions due to hurricanes, and some of that is likely true. However hurricanes can’t explain all of this reduction and it appears that OPEC, Saudi Arabia in particular is actually making good on their promise to reduce exports to the US.

US Stocks of Primary Oils Decline 6.5M Barrels

If you have been following me for a while you know that when tracking the US “Petroleum Glut” I tend to ignore “Total Petroleum Stocks” primarily because it includes ~400M bbls of NGL’s. Sure, it's "petroleum" but I believe NGL's and "Other" just muddy the picture and diminish the value of that metric. After all, what we all really want to know is the direction of the price of crude oil, so why mix in mostly unrelated byproducts of natural gas production? Instead, I look at “Primary Oils” which is simply Crude+Gasoline+Distillate+Jet Fuel. These are the primary drivers behind the price of crude, not Propane, Ethanol, and “Other Oils”. Also note that I include the SPR in my numbers, so movements out of or into the SPR don’t affect my numbers. I am primarily interested in the actual consumption/burning of petroleum, not the mere transfer from one tank to another whether that is crude tank to product tank after refining or SPR to Commercial tank following a hurricane or SPR sale.

Primary Oils

This week’s big 6.5M bbl draw in Primary Oil can be attributed to Hurricane Nate shutting down most of the Gulf of Mexico’s Production last week and pushing domestic production about 1.2M bbls/d lower. However, taking a step back we can see that this is far from a one off. After peaking at an all-time high back in February just shy of 1.7B barrels, primary oil stocks have fallen in 32 of the last 35 weekly reports for an average draw of 4.5M bbls a week. Add it all up, and of the initial ~250M barrel glut we have burned through 159M barrels, or ~60% of it. Some of that is seasonal, but looking at 2016, the draw started later and only averaged 2.5M bbl/d. 2016's total seasonal draw came in at 63M bbls so clearly the 2017 drawdown is a materially different event already and it could keep going.

Gut Feeling:

If in early spring you had wanted to pencil out a scenario for oil to make a run at $60 by the end of the year, it would have had to include a drawdown in inventories in the 125M-150M bbl range. So here we are, with a 159M bbl draw down so far, and as I write this oil (USO) sits at about $52, clearly not impressed with this latest report or the 159M bbl drawdown. I guess the flipside is that without the impressive draws of the last 8 months, oil could be retesting those 2016 sub $30 lows.

While $60 oil isn't a sure thing I do still think it's a strong possibility by the end of the year if the current trends continue. By that I mean primarily OPEC exports to the US staying under 2.6M bbl/d, US production growth slowing or even stabilizing, and consumption staying more or less flat YOY. If we run through November and are still booking weekly draws, even if they are smaller in the 2M-3M bbl/week range, that should be enough to convince the market that this time OPEC is doing more than just talking.

Still, it’s far from being a certainty. A few months ago, neither a run at $60 or a dip under $40 by year end would have surprised me. Today, a run at $60 by the end of the year or early 2017 looks quite possible while a dip under $40 is starting to look unlikely (not impossible…just less likely).

There are some scraps of hope for the Bears though. The primary unanswered question I have is in regards to the sharp increase in US exports (crude and products) plus the recent development of OPEC cutting back on exports to the US. Where is all that product going? Is it actually getting consumed in other markets or are the major players in the oil market just shuttling oil out of the high visibility US market and into markets with unreliable and untimely reporting? If that’s the case I suspect it will ultimately backfire. Personally, I think another 6-12 months of ~$50 oil would actually provide a much more sustainable base to build off of in the years to come than a premature and manufactured spike to $60.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.