Oil Supply Continues To Trend Lower

Thursday this week, markets will get another look at oil inventory levels with the release of the weekly EIA Petroleum Status Report. The past few weeks have confirmed strong declines in oil inventory levels. Last week's drawdown was 9.9 million barrels, and the prior week saw a contraction of 5.9 million barrels.

This normalization of oil supply is pushing oil prices higher, along with less inventory out of Iran. As the below chart shows, oil prices at $74.19/bbl for WTI is aligned with inventory levels that were reached in early 2015. At that time though, inventory levels were on the upswing; thus, oil price pressure was to the downside then. With supply tightening now, price pressure is to the upside

The other aspect of the tightening supply level today is the fact increased drilling activity has been pursued at a more measured pace. Although rig count in the U.S. and Canada is up a total of 770 rigs since mid-2016, rig levels remain far below the 2,702 peak reached in 2012. The obvious conclusion is oil prices will continue to rise so long as supply continues to trend lower. At the moment, this seems the path of least resistance.

This article was written by

HORAN Capital Advisors is an SEC registered investment advisor that manages investment portfolios for individuals and institutions. Our firm utilizes a disciplined investing approach that should create wealth for our clients over time. Our investment bias is to invest in companies that generate a steady return over time, i.e., singles and doubles. This singles and doubles approach tends to lead to investments in higher quality dividend growth/cash flow growth companies. On the other hand, there are times when a company's stock price seems to be trading below its fair valuation. Short term gains are possible in these situations. I have been managing investment portfolios for individuals and institutions for over fifteen years and believe investing is like running a marathon and not a sprint. Taking the road less traveled, more often than not, leads to higher returns. Visit: The Blog of HORAN Capital Advisors at (https://horanassoc.com/insights/market-commentary-blog)
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