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U.S. Commercial Crude Inventories Could Breach 400 Million Barrels For The First Time Since 2015

|Includes: The United States Oil ETF, LP (USO)

The last time inventories were below 400MMbbl was Feb. 20, 2015.

Will take an EIA draw of 5.249mmbbl to achieve the feat.

Crude inventories have dropped 90MMbbl YoY (July 2017 - July 2018).

It has been a very long time since since U.S. commercial crude inventories saw less then 400,000,000 barrels of inventory.  The week ending for February 20, 2015 was the last time the energy market would realize sub 400,000,000 barrels of crude oil until no sooner then possibly, if reported by the EIA for the week ending July 13, 2018 on July 18, 2018.  

It will take a measly 5.249MMbbl of a crude oil draw to breach the longstanding 400MMbbl handle, which seems about as difficult as taking a cruise ship in the Cayman Islands for this time of year, as the market comes off the busiest holiday for U.S. drivers, the heart of American driving season and at time U.S. refineries are processing feedstock at record breaking capacities week-over-week.  

The beginning of the dreaded 2015s saw a multi-year stretch of the so-called "lower for longer" oil prices and the beginning of an oil glut that didn't start to fade until 2017.  Oil had just collapsed from 3-figures to half that value and chaos in the oilpatch began to ensure as companies started laying off workers, ramping up debt and cutting capex spending

Later in the same month of February 2015, for the week ending 02/27/17 was the first time U.S. commercial crude inventories logged over 400,000,000 barrels of crude oil; just about exactly one year later, U.S. commercial inventories reached 501,517,000, breaking the 500-million handle for the first time in history at a staggering pace as Saudi Arabia flooded the U.S. market alongside domestic shale production.  

As fast as crude inventories built, they have also fallen at a historical pace.  With nearly 100,000,000 barrels of oil drawing from U.S. inventories between July 2017 & July 2018, the market has never experienced such a rapid rate of fall. Most interestingly are the Cushing, Oklahoma crude inventories which have emptied over 50% YoY to an extreme low level of 25,718,000 with a strong prospect of continued largescale draws due to supply disruptions.

Some may attribute the rapid drop of crude to OPEC's cuts, but this may be short-sighted without looking deeper into the problem.  It's also as important not to disregard that U.S. production is at an all-time record for production, defying all odds;  Canadian heavy oil imports to the U.S. are at an all-time high while Venezuelan and Mexican imports continue to dwindle.  

With crude possibly bullishly breaching the long since elusive 400-million handle this week, I think it is important to remain focused on fundamentals in the market while omitting the price reaction.  I predict the market reaction will inevitably be much harsher for the upwind then what the downwind has provided. As Trump flirts with the idea of an SPR release, and the media fixates stories on Saudi Arabia increasing production to appease Trump, most ignore the massive and growing market disruptions which are becoming more powerful and more common at a time the market is becoming more sensitive.

Many market dwellers still fantasize of electric cars seizing the roads and solar power killing demand, the end result is that global oil demand has grown YoY at a rate above and beyond what global organizations such as the IEA have predicted and oil supply has not kept up to demand;  essentially, one could subtract an entire year of global capital expenditures spending since 2015-18 due to price crash. In fact, in 2017 it was reported that never before in history has the world witnesses so few of new oil discoveries.  

While the price of crude will continue to fluctuate and become more volatile in the era of Donald Trump and his tweets, it is this authors opinion that 2018 will see the realization of a multi-year bull market for the oil and and gas industries as the market enters an indisputable supply deficit and disruptions, such as Venezuela, Iran, Iraq, Angola, even Norway and beyond, intensify.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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