U.S. Crude Storage Draws Hit Our Estimates

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Includes: AOIL, BNO, DBO, DTO, DWT, NRGD, NRGO, NRGU, NRGZ, OIL, OILD, OILK, OILU, OILX, OLEM, OLO, SCO, SZO, UCO, USAI, USL, USO, USOD, USOI, USOU, UWT, WTID, WTIU, YGRN
by: HFIR
Summary

US crude storage estimates in recent weeks have hit our estimates almost to the dot. Over the last 8-weeks, we've only been off an average of -0.03 mbbls.

For next week, we have a crude storage draw of 1.74 mbbls.

US crude storage by the end of September should fall to ~407 to ~410 mbbls.

US crude export arbs are wide open indicating much higher US crude exports than our assumption.

US shale growth has also slowed materially compared to our initial assumptions.

Welcome to the next edition of Oil Markets Daily!

US crude storage estimates in recent weeks have hit our estimates almost to the dot.

Source: HFI Research

Over the last 8-weeks, our average miss has been -0.03 mbbls which is to say we've basically been on the dot with EIA's figures.

We have consistently improved the process from nailing down incoming US refinery throughput by tracking down planned maintenance to using the leading indicator to figure out US crude oil production. So far, the results are speaking for themselves and we are happy with where we are headed.

For next week, we have a crude storage draw of 1.74 mbbls.

US crude imports are expected to fall back to the low 6s in the coming weeks.

As a result, US crude storage by the end of September should fall to ~407 to ~410 mbbls.

380 by year-end?

As we've been documenting over the last few months, we maintained our confidence for US crude storage to fall below ~380 mbbls by year-end.

But more importantly, several factors have shown up recently to make our estimates more or less conservative.

One of them is that US crude export arbs for the end of the year are so high, we think US crude exports are likely to hit a new record high.

Source: ICE, HFI Research

Our assumption for October to December currently use ~2.95 mb/d as our export assumption, but keep in mind that September is likely to see US crude exports average ~2.9 mb/d and the spread was only ~$1.9/bbl. With the spread around $3/bbl, we think it's almost certain US crude exports will average above ~3.3 mb/d.

As a result, this biases our assumption to the conservative side.

Lastly, a more interesting development is taking place, which is that US shale production growth is stalling.

Preliminary assumption had September US oil production at ~12.6 mb/d, but the figure is now showing production to be flat m-o-m. We have ~12.45 mb/d with an exit of around ~12.7 mb/d.

This is compared to our assumption of using ~13.15 mb/d as our exit for our US crude storage assumption. This combined with the elevated US crude exports offers a margin of safety of ~800k b/d in our figures. This means that we can be off by ~800k b/d in some other unexplainable figure and still hit our ~380 mbbl end of the year US crude storage estimate.

So yes, we remain confident that our figure is on track.

Disclosure: I am/we are long UWT. 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.