Weekly Energy Update (August 3, 2023)

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

Oil prices challenged the upper end of the trading range but so far have failed to breakout above that level.

(Source: Barchart.com)

Commercial crude oil inventories fell a massive 17.0 mb, well above the 2.3 mb draw forecast.  The SPR was unchanged.

In the details, U.S. crude oil production was steady at 12.2 mbpd.  Exports rose 0.7 mbpd, while imports increased 0.3 mbpd.  Refining activity fell 0.7% to 92.7% of capacity.

(Sources: DOE, CIM)

The above chart shows the seasonal pattern for crude oil inventories.  Last week’s large decline has put inventories below their seasonal average.

Fair value, using commercial inventories and the EUR for independent variables, yields a price of $65.79.  Commercial inventory levels are a bearish factor for oil prices, but with the unprecedented withdrawal of SPR oil, we think that the total-stocks number is more relevant.

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.

Total stockpiles peaked in 2017 and are now at levels last seen in late 1985.  Using total stocks since 2015, fair value is $94.97.

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