Weekly Energy Update (April 1, 2021)

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

After peaking in early March, prices have pulled back to pivot around $60 per barrel.  Although recent builds in crude oil are bearish, expectations for stronger economic growth should be supportive for prices.

(Source: Barchart.com)

Crude oil inventories fell 0.9 mb compared to the 1.7 mb draw expected.  There was no change in the SPR.  Refinery operations have normalized to pre-Texas freeze levels.

In the details, U.S. crude oil production rose 0.1 mbpd to 11.1 mbpd.  Exports rose 0.7 mbpd, while imports rose 0.5 mbpd.  Refining activity rose 2.3%.

(Sources: DOE, CIM)

This chart shows the seasonal pattern for crude oil inventories.  We are well into the winter/early spring build season.  Until the Texas freeze, we were seeing a counterseasonal decline.  This week, stockpiles declined modestly but usually don’t this time of year.  We are currently at a seasonal deficit of 21.5 mb.

Based on our oil inventory/price model, fair value is $40.53; using the euro/price model, fair value is $64.67.  The combined model, a broader analysis of the oil price, generates a fair value of $51.04.  The divergence continues between the EUR and oil inventory models, although recent dollar strength has reduced the projected fair value generated from the euro/price model.

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