Weekly Energy Update (May 6, 2021)

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

Tightening supplies have lifted crude oil prices toward the top of the recent trading range.

(Source: Barchart.com)

Crude oil inventories declined 8.0 mb compared to the 2.0 mb draw expected.  The SPR fell 1.0 mb, meaning without the addition from the reserve, commercial inventories would have declined 9.0 mb.

In the details, U.S. crude oil production was steady at 10.9 mbpd.  Exports rose 1.5 mbpd while imports fell 1.2 mbpd.  Refining activity rose 1.1 mbpd.

(Sources: DOE, CIM)

This chart shows the seasonal pattern for crude oil inventories.  We are through the peak of the winter/early spring build season.  In the second half of June, stockpiles usually decline.  Note that stocks are already below the usual seasonal trough seen in early September.  Our seasonal deficit is 53.0 mb.

Based on our oil inventory/price model, fair value is $46.25; using the euro/price model, fair value is $66.02.  The combined model, a broader analysis of the oil price, generates a fair value of $55.09.

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