Weekly Energy Update (October 5, 2023)

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

After making a run at $95 per barrel last week, prices are correcting; we suspect rising interest rates are increasing fears of an economic slowdown.

(Source: Barchart.com)

Commercial crude oil inventories fell 2.2 mb compared to forecasts of a 1.5 mb build.  The SPR rose 0.3 mb, which puts the net draw at 1.9 mb (difference due to rounding).

In the details, U.S. crude oil production was steady at 12.9 mbpd.  Exports rose 0.9 mbpd, while imports fell 1.0 mbpd.  Refining activity fell 2.2% to 87.3% of capacity.  We are clearly heading into the autumn refinery maintenance period which should reduce demand.

(Sources: DOE, CIM)

The above chart shows the seasonal pattern for crude oil inventories.  Last week’s decline is contra seasonal and thus is bullish for crude oil prices.  The continued drop in stockpiles while refinery maintenance is underway is profoundly bullish for oil prices.

(Sources: DOE, CIM)

Fair value, using commercial inventories and the EUR for independent variables, yields a price of $76.55.  The continued draw in commercial inventories is supportive for oil prices, but there is a geopolitical risk factor that is boosting prices as well.

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 1984.  Using total stocks since 2015, fair value is $95.21.

Market News:

Geopolitical News:

Alternative Energy/Policy News:

  View PDF