Weekly Energy Update (March 16, 2023)

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

Crude oil decisively broke its recent $72-$82 per barrel trading range.  Fears of recession,  exacerbated by widespread banking problems, weighed heavily on oil prices.

(Source: Barchart.com)

Crude oil inventories rose 1.6 mb on forecast.  The SPR was unchanged.

In the details, U.S. crude oil production was unchanged at 12.2 mbpd.  Exports rose 1.7 mbpd, while imports fell 0.1 mbpd.  Refining activity rose 2.2% to 88.2% 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 have slowed.  Levels remain above seasonal norms, but with refinery activity starting to ramp up for summer, we should see some declines in the coming weeks.

Fair value, using commercial inventories and the EUR for independent variables, yields a price of $52.32.  Although we think there is enough geopolitical risk in the world to prevent a decline to this level, it does suggest the oil market is dealing with rather weak fundamentals.

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 $92.96.

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