Weekly Oil Market Recap - Important Inflection Point
Summary
- WTI finished the week down 3.62%.
- EIA reported December US oil production down 108k b/d m-o-m, but this will prove to be temporary. We are seeing strong US shale growth in 2018 barring takeaway capacity constraints.
- Weekly oil storage report was bearish with gasoline being the standout figure. The bearish implication is that refinery throughput could come in lower than expected in March.
- March will prove to be an important inflection point for the global oil markets because consensus came into Q1 2018 expecting sizable builds in OECD storage.
- January and February have shown basically no change in storage, so if March surprises to the upside, this will bode very positively for prices for the rest of the year.
Welcome to the Weekly Oil Markets Recap Edition of Oil Markets Daily!
WTI finished the week down 3.62%.
The EIA 914 report was the highlight of the week, while the EIA weekly oil storage report saw the second bearish oil storage report in 2018.
EIA 914
This week saw EIA report December US oil production being down 108k b/d m-o-m. The decline as we wrote here in our analysis came from seasonality issues with Gulf of Mexico.
As we mentioned in the report, the positive adjustment factor (unaccounted for crude oil) for December came from the understatement of US oil production. Our trued-up US oil production assessment then shows January to show another month of decline in US oil production, likely due to weather. And February to show a rebound to ~10.25+ million b/d.
The Permian, which was the key to why US oil production grew 1.178 million b/d y-o-y, will continue to grow strongly in 2018 barring any takeaway capacity constraint issues in the second half of 2018.
The declines we saw in Gulf of Mexico, which pushed production lower by 131k b/d m-o-m, will likely rebound soon, so readers should be aware that this drop in monthly production will only be temporary.
Combining the latest EIA 914 with our assessment of US oil production growth, we believe US shale will grow ~908k b/d y-o-y in 2018 with exit-to-exit production growth closer to ~1.2 to ~1.3 million b/d. The latest EIA 914 report does not change our global oil supply and demand forecast given our view that US oil production will exit 2018 at ~11.25 million b/d.
Weekly Oil Storage Report
This week also encompassed the second bearish EIA oil storage report since the start of the year. Our preliminary forecast of +1.76 million bbls came in below the 3.019 million bbls EIA reported.
One factor that's causing some potential concerns over the next month or so has nothing to do with crude storage, but gasoline storage.
Seasonally speaking, gasoline storage was supposed to start declining two weeks ago, and instead, we saw a build last week of 2.483 million bbls. While absolute storage remains below 2016 and 2017 levels, the outlook for gasoline storage is that if it doesn't start showing storage declines soon, then refinery throughput figures could come down for March.
We think the refinery maintenance scheduled for April could be brought forward.
But despite the bearish weekly oil storage report, the overall picture remains biased to the bull side. Total oil liquid stockpile has declined since the start of the year, and we don't see this changing.
Inflection Point
In our weekend flagship weekly report, we noted how the technical and fundamental set-up has the oil markets at an inflection point. The global oil storage build that consensus expected coming into Q1 2018 has been nonexistent so far, and with one month left, March will prove to be a very important month for the oil price outlook going forward.
Our view is that the global oil will be flat again in March followed by basically no change in January and February, and this will bode well for prices for the rest of 2018. Once the global refinery maintenance season comes to an end in April, the high oil demand growth (weighted towards the second half of this year) will kick in, prompting higher global oil storage draws.
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