TOTAL PETROLEUM STOCKS INCREASE 13.4M BARRELS

The wild swings in total petroleum stocks continue this week as imports rebounded up 12M bbls and US production continues to pick up. This week’s +13M bbl build follows last week’s +6M bbl build. Alone, that would be very bearish, but the 2 weeks prior had draws of 13M bbls and 12M bbls. Add it all together and the 4 week average looks pretty tame compared to the weekly swings at a 1.3M bbls a week draw. To put this chaos in perspective, the Opec/NOpec published cuts of 1.8M bbl/day translates to a 12.6MB reduction of global supply per week.

If we assume 25per cent of that was headed for the US, all else equal (it’s not) we should be seeing weekly declines of -3M bbls a week starting some time next month. Coincidentally my simple inflow/outflow model is forecasting average stock draws of about 2.5M bbls a week through February. Unfortunately, this model clearly isn’t up to the task of forecasting the volatility we are currently seeing, especially with crude imports swinging 13M bbls up and down in a week.

After hovering around 8.25M bbls a day for the last 4 weeks, reported production for lower 48 increased 190,000 bbls a day in the latest report. That’s impressive, but the reality is that this is just another periodic catch up for the EIA’s modelled weekly production. It’s still impressive, but the weekly increase is probably closer to 4050 thousand bbls a week.

Two weeks of stock builds totalling nearly 20M bbls is pretty bearish, but the 2 weeks before that had 25M bbls of draws, so it’s not all bad, it’s just not nearly as good as it was looking 2 weeks ago. I am seeing a lot of reports that some Opec members were boosting production in December to boost revenue before the 1/1/2017 production cuts, so it is possible that we see high imports for a few more weeks as oil produced in December makes its way to the consumer markets. We should start seeing reduced Opec imports in the next 4-6 weeks, at which point 4M-6M bbl a week draws could become the norm if compliance is at 100 per cent. [Scott Anderson – Seeking Alpha]