Weekly Energy Update (June 10, 2021)

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

Oil prices have moved above the $60 to $68 per barrel trading range and are testing $70 per barrel.

(Source: Barchart.com)

Crude oil inventories fell 5.2 mb compared to the 3.3 mb draw expected.  The SPR fell 1.3 mb, meaning without the addition from the reserve, commercial inventories would have declined 6.5 mb.

In the details, U.S. crude oil production rose 0.2 mbpd to 11.0 mbpd.  Exports rose 0.4 mbpd while imports rose 1.0 mb.  Refining activity jumped 2.6%, which accounts for the rise in product inventories.

(Sources: DOE, CIM)

This chart shows the seasonal pattern for crude oil inventories.  We are beginning the summer withdrawal season.  Note that stocks are already below the usual seasonal trough seen in early September.  A normal seasonal decline would result in inventories around 465 mb.  Our seasonal deficit is 64.4 mb.

Based on our oil inventory/price model, fair value is $50.31; using the euro/price model, fair value is $69.15.  The combined model, a broader analysis of the oil price, generates a fair value of $60.16.  Oil prices are outpacing inventory levels but are in line with the dollar’s decline.

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