Weekly Energy Update (June 3, 2022)

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

Crude oil prices continue to grind higher despite reports of OPEC+ production increases and record SPR sales.

(Source: Barchart.com)

Crude oil inventories fell 5.1 mb compared to a 3.0 mb draw forecast.  The SPR declined 5.4 mb, meaning the net draw was 10.5 mb.

In the details, U.S. crude oil production was unchanged at 11.9 mbpd.  Exports fell 0.3 mbpd, while imports fell 0.4 mbpd.  Refining activity declined 0.6% to 92.6% of capacity.

(Sources: DOE, CIM)

The above chart shows the seasonal pattern for crude oil inventories.  This week’s report is consistent with last year’s pattern.  If that becomes the path for the next six weeks, a 10% decline in commercial stockpiles is in the offing.

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 seen in 2005.  Using total stocks since 2015, fair value is $92.85.

With so many crosscurrents in the oil markets, we see some degree of normalization.  The inventory/EUR model suggests oil prices should be around $60 per barrel, so we are seeing about $40 of risk premium in the market.

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