Weekly Energy Update (September 21, 2023)

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

Oil prices have continued their rise, with Brent trending toward $95 per barrel.  Recent extensions of the production cuts by the Kingdom of Saudi Arabia (KSA) have boosted prices.

(Source: Barchart.com)

Commercial crude oil inventories fell 2.1 mb compared to forecasts of a 1.7 mb draw.  The SPR rose 0.6 mb, which puts the net build at 1.5 mb.

In the details, U.S. crude oil production was steady at 12.9 mbpd.  Exports rose 2.0 mbpd, while imports fell 1.1 mbpd.  Refining activity fell 1.8% to 91.9% of capacity.

(Sources: DOE, CIM)

The above chart shows the seasonal pattern for crude oil inventories.  Last week’s decline is mostly consistent with expected seasonal patterns.  However, we should start to see inventories rise in the coming weeks, but if they fail to do so, it could give another lift to oil prices.

Fair value, using commercial inventories and the EUR for independent variables, yields a price of $74.10.  Commercial inventory levels are a bearish factor for oil prices, but with the unprecedented withdrawal of SPR oil, we think that the total-stocks number is more relevant.

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 $95.20.

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