Welcome to the weekly oil storage report edition of Oil Markets Daily!
Highlights
This week's EIA oil storage report was neutral.
Total liquid stockpile saw the same change versus the 5-year average.
Crude storage saw a build of 2.408 million bbls and in-line with our last week's estimate of +2.6 million bbls. The crude storage change came in below the five-year average and over the last 3 years, this week has been one of the largest builds during the refinery maintenance season.
The important variable out this week was the negative adjustment of 570k b/d. This was an 822k b/d difference from last week's +252k b/d. This pushed trued-up US oil production to 9.799 million b/d from 10.535 million b/d. The week-over-week volatility is apparent, but we use this to gauge what the average monthly US oil production is. Now that we have February data, we show US oil production coming in at 10.195 million b/d in February.
This is ~104k b/d below the weekly US oil production estimate of 10.298 million b/d.
Cushing storage dropped 605k bbls week-over-week, and storage is now sitting at 28.18 million bbls.
Gasoline storage change came in bearish with only a drop of 788k bbls versus the -2.651 million bbls for the 5-year average. All eyes will be on gasoline storage change in March. We think if bearish gasoline storage continues, gasoline crack spreads will come under pressure forcing refinery maintenance into March from the scheduled April and potentially push crude storage higher (via lower refinery throughput).
Distillate storage change also came in lighter than the 5-year average, but total storage is right at the 5-year average.
Refinery throughput came in higher w-o-w versus our estimate for a decrease.
Crude imports jumped by more than 721k b/d, but according to the third-party tanker tracking services we saw, some of the imports from last week were counted in this week's report. We expect crude imports to drop sharply in next week's report.
Crude exports were slightly higher w-o-w by 53k b/d to 1.498 million b/d. We expect crude exports to remain and average around 1.4 million b/d for the rest of Q1.
SPR increased by 175k bbls this week.
Overall, this report was important because it has been seasonally the worst storage report in Q1. With an underwhelming crude build, Q1 storage is on pace to finish on a bullish note at the end of March. But the market is starting to worry over the bearish gasoline storage changes, and the implications going forward could push refinery throughput lower. This is something we need to remain focused on. Lastly, US oil production for February looks to have averaged ~10.195 million b/d, and the massive growth in US oil production we saw in September to November isn't repeating at the start of 2018 - another important data point to keep on the side.
With the 5-year average in the line of sight, we need to remain focused on the important variables in each of the oil storage reports. We reiterate once again that:
- Crude imports and exports.
- Adjustment.
- And US oil production.
These three are the most important data points to keep your eyes on.
Next Week's Forecast
Last week, we forecasted +2.6 million bbls for this week, and EIA reported +2.408 million bbls. For this week, we have a preliminary crude storage draw of 860k bbls. The big change w-o-w is the drop in crude imports to 7 million b/d and the gain in refinery throughput.
These numbers are still preliminary, and we are hearing that crude exports this week could surprise to the upside. For now, we are forecasting a crude draw of 860k bbls.
US Oil Production + Adjustment
One of the most important variables in each week's EIA oil storage report is the adjustment in conjunction with the weekly US oil production estimate. The weekly US oil production estimate figure is pretty much known in advance as it's based off the EIA's short-term energy outlook or STEO. You can see the US oil production forecasts in the data browser here.
For example, you can see above that EIA has March US oil production at 10.39 million b/d. So you should expect the weekly production figures to increase until it reaches this level. For April, it has 10.47 million b/d.
It is then very important to track the changes in adjustment or unaccounted for crude oil in each EIA oil storage report to see whether the adjustments are positive or negative.
If it is positive, then it's likely that EIA underestimated supplies or overestimated demand.
If it is negative, then it's likely that EIA overestimated supplies or underestimated demand.
Over the last 4 months, we have seen a close correlation with the positive adjustment being attributed to understated supplies or namely US oil production. This is why we have started including the "trued-up" US oil production figure in each week's oil storage report.
As a result, the week to week trued-up US oil production can be very volatile, but it has proven to be a good guide to the directional change in US oil production as seen in the chart below:
Using the latest data, we have US oil production averaging 10.195 million b/d for February.
The 8-week rolling average adjustment has also recently turned negative, indicating that EIA is likely overstating weekly US oil production again as was the case from March to August last year.
Our view is that US oil production is likely closer to 10.25 million b/d currently.
Crude
We are now 9-weeks into 2018, and US crude storage has barely built versus the historical averages. If the bullish crude storage change continues into the end of Q1, it would set us up for a very bullish rest of 2018.
Here's our forecast for the rest of Q1 2018:
Now we do want to point out that refinery maintenance kicks into second gear in April, and while we are currently forecasting refinery throughput to increase for the rest of March, due to the recent weak gasoline storage change, we could see some of that maintenance brought forward into March and potentially push our crude storage estimate higher.
For now, we are showing one more crude storage build in March, and then we draw into month end.
Cushing
Cushing storage declined again last week by 605k bbls, but the declines have been moderating as you can see above. We are starting to see higher crude imports from Canada increase (previously stymied by Keystone), and while we still see Cushing storage declining, the rate of the decline could slow.
Next week shows a 5-year average build of 426k bbls for Cushing.
Gasoline
As we said at the start, gasoline storage was the bearish figure this week with a decline of 788k bbls versus the five-year average of 2.651 million bbls.
Gasoline storage is now in-line with where we were in 2016 and 2017. Over the next few weeks, the market will be watching gasoline storage very closely because the implication for bearish gasoline storage change is potentially lower refinery throughput which could put pressure on crude prices.
Distillate
While last week's distillate storage change was bearish, so far in 2018, we've tracked the five-year average very closely despite higher than normal refinery throughput. Seasonally speaking, distillate storage will keep drawing and we don't see anything out of the ordinary here.
Refinery Throughput
Refinery throughput came in slightly higher than we expected last week. Over March, we are currently projecting refinery throughput to increase followed by more refinery maintenance in April. As we stated above, if refined production storage change is bearish, we could see lower than expected refinery throughput, which would put pressure on crude.
For now, we are expecting refinery throughput to start rebounding from here.
Crude Imports
Crude imports leaped massively w-o-w to over 8 million b/d. But looking at third party tanker tracking data, this week's imports could have counted the missing imports from last week.
We are currently forecasting a very big drop in crude imports for next week's oil storage report.
Crude Exports
Crude exports rebounded this week to 1.498 million b/d. We expect crude exports to average 1.4 million b/d for the rest of March. While our next week's crude storage forecast is using preliminary export figures, third-party tanker tracking services are indicating this week's exports could surprise to the upside.
Total Liquids Stockpile
No surprises on the total liquids stockpile front. The storage change was in-line with the 5-year average. Seasonally speaking, total liquids stockpile declines.
Days of Supply
Conclusion
This week's EIA oil storage report was neutral. Crude was bullish as the build was lower than historical averages, while gasoline was bearish with a draw much smaller than historical averages. We explained the implications above, and lower refinery throughput in March could push higher crude storage putting pressure on oil prices.
Going forward, we will be watching crude imports/exports, adjustments and US oil production figures closely. Our trued-up US oil production figure can give us some clarity as to where US oil production stands today and February is tracking 10.195 million b/d. The growth of US oil production is also vitally important as it can swing storage balances later on in 2018.
For now, we expect a bullish finish in crude storage by the end of March, but we need to start seeing supportive gasoline storage changes in the next few EIA oil storage reports.
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