Weekly Energy Update (April 6, 2023)

by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA | PDF

Crude oil jumped on the unexpected decision by OPEC+ to cut production targets.

(Source: Barchart.com)

Crude oil inventories fell 3.7 mb compared to the forecast of a 1.8 mb build.  The SPR fell 0.4 mb.

In the details, U.S. crude oil production was unchanged at 12.2 mbpd.  Exports rose 0.7 mbpd, while imports increased 1.8 mbpd.  Refining activity declined 0.7% to 89.6% of capacity.

(Sources: DOE, CIM)

The above chart shows the seasonal pattern for crude oil inventories.  After accumulating oil inventory at a rapid pace into mid-February, injections first slowed and then declined for the past two weeks, putting levels near seasonal norms.

Fair value, using commercial inventories and the EUR for independent variables, yields a price of $55.48.  The actions of OPEC+ this week are clearly designed to prevent this sort of price from emerging.

Since the SPR is being used, to some extent, as a buffer stock, we have constructed oil inventory charts incorporating both the SPR and commercial inventories.  With another round of SPR sales set to happen, the combined storage data will again be important.

Total stockpiles peaked in 2017 and are now at levels last seen in 2001.  Using total stocks since 2015, fair value is $94.11.

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