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Putting Recent Oil Trends Into Perspective



  • Recently, both crude and total stocks in the oil space have risen, spurred by increased drilling.
  • This move looks bearish and is by itself, but it's important to put into context recent trends versus what was seen during the real energy downturn.
  • This is a modest increase in inventories that will likely come down later this year, especially if the rig count continues to decline.
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For the past few months now, since oil prices climbed back up from the $40s, WTI has been in something of a holding pattern, moving within a few dollars in the mid to high $50 range. On one hand, you have bears touting growing supply figures and weakening global demand growth, and on the other, you have the bullish news related to OPEC’s cuts, various geopolitical tensions, and the prospect that global demand will be higher this year than any year ever in the past.

In this particular article, I’d like to point you to some recent trends we have seen in the space, trends that the bears use to justify their stance, and I’d also like to put this in perspective so we have a proper understanding of just where we stand on the oil frontier.

Commercial crude stocks are climbing

First, let’s begin with commercial crude stocks, as reported on a weekly basis by the EIA (Energy Information Administration). In the graph below (which I adjusted on the y-axis so we can see the fluctuations), you can see the trend that commercial crude stocks have taken over the past 52 weeks. Over this time frame, the data has been, relative to this time last year, fairly bearish.

*Created by Author

You see, as of the time of this writing, crude stocks classified as ‘commercial’ stand at about 452.93 million barrels. This represents a sizable increase of about 27.03 million barrels over the 425.91 million barrels the US saw the same week of 2018. Such a large move higher, on its own, is undeniably bearish on a relative basis, but when you consider the overall trend that crude stocks have taken in recent years, the picture doesn’t look quite as bad.

*Created by Author

In the chart above, for instance, you

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This article was written by

Daniel Jones profile picture

Daniel is an avid and active professional investor. He runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein.

Analyst’s 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.

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Comments (6)

Thanks for the article.

What's your take on OPEC targeting reduced exports to US, in particular TX where domestic inventories are overflowing from shale production?

IMO this could be starting to show some success in weekly reports and coupled with shale dropping rigs the visual is positive for future oil prices.

Hazy... profile picture
Valero, Chevron try to return Venezuelan oil following sanctions - Top U.S. buyers of Venezuelan oil are in the odd position of trying to return millions of barrels of crude they need but cannot accept because of U.S. sanctions on the country and its state-run energy firm PDVSA, Reuters reports. Log Jam on the High Seas?
Brian C. Nelson profile picture
Good article.

You are correct that oil inventories have increased recently, but they almost always increase this time of year. I think they have increased at a slower rate than normal, which means inventory levels are starting to converge with the 5-year average. My guess is this trend continues and should push oil north of $60/bbl in the next month or so.
damonhill profile picture
@Brian C. Nelson - a month later and WTI is above $60/bbl. What do you see as the next target? Do you think we trade sideways from here?
Brian C. Nelson profile picture
Not sideways. Saudi will drive the next 12 to 18 months. They have made one costly mistake after another. Those days are likely over. Expect them to focus on recovering a portion of the $500 Billion they have squandered since 2015. As such, I see them starving the oil market by keeping their production near 10 MMbo/d for at least a year. Global demand growth of ~1.4MMbo/d this year and next will almost be entirely met from other sources of supply. It's going to be a tight market. My guess is Brent trades up to the $80-$90 range later this year and more or less stays there. There will be brief periods where it exceeds $90 and is below $80 but that will be technically driven.
You should also be looking at days of supply. Storage may be higher in absolute terms in a given year, but not relative the rate of consumption (which generally increases from year to year).
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