June 16, 2016 Oil Report
Seasonally, WTI is in a period of high draw expectations due to consumer and business demand. Prior session, the EIA showed a smaller than expected draw -933k vs. an expected -2.3k. However, gasoline draws were sizeable -2.62mm, but distillates built +786k. Cushing on the other hand is at 93.87% full working capacity due to the facilities latest build. We tend to ignore API due to reporting inaccuracies when compared to EIA.
Here is the Full Report->
June 9, 2016 Oil Report:
WTI EIA oil inventories for June 3, 2016 printed at -3226k vs. -3000k. Focus was on production increase from 8.745m vs. 8.735m, due to rig counts stabilizing. Worth noting are the builds in gasoline and distillates as the US Driving season is underway.
EIA US crude oil inventories
|June 2 16 Oil Note-|
Latest EIA oil inventories -1366k vs. -2500k exp. Prior session API 2.35mm barrel build as there continues to be a wide margin of error of data sets.
|May 25, 16 Oil Note-|
EIA prints a large draw coming in at -5.137mm on WTI. This sent spot on a wild roller coaster closing in at the 49 handle. Seasonally, draws are expected, so we weren’t concern, except for the large gasoline build. RBOB drew on the east coast, but convention grades were up. Refineries and storage facilities remain in a massive glut of crude and crude products. The advancement of WTI due to reflation by FED in suppression of the USD serves no justice in rebalancing, but more supply side gimmicks. Just look to the east, as China spends a Trillion USD in reflating their commodities, which in 3 months has now gone bust adding to global overcapacity. The strong USD theme is back as the FED turns hawkish for June. Renewed stress in EM/FX, EM, HY, commodities, and equities is worrisome. US Shale could cap the WTI rally on the 50 handle which would serve as a floor to come back online. As, we’ve stated before speculators run the market, and at some point fundamentals will readjust.
|April 14, 16 Oil Note-|
Our analysis of WTI’s physical, financial, and technical environment continues to maintain our prior note’s belief of an unfair high will be seen in the market place. Our past note states the unfair high will be seen in the 36-40 ceiling, which was seen in early April reverting price from 41 to the mid-30s. An over enthused headline chasing market used recycled news from the mid 30s to breach +124bps of our upper extreme ceiling (40). We believe this weekend’s DOHA meeting will disappoint traders.
The Saudi Regime is on a multi front price war with it’s own organization, top Non-OPEC producers, and US Shale. Name of the game for the Saudi Regime is lower prices for longer to advance market share. We’ve seen an interesting flanking maneuver by the Saudi regime calling for March meetings of production freezes, then under delivering. We suspect that outcome at this weekend’s meeting will under preform market expectations, which may trigger the reversion.
|April 6, 16 Oil Note-|
Today’s EIA report is the largest draw since the first week of Jan’16. Oil inventories declined by 4.949MM, but a build at Cushing. Also a surprise build in Gasoline and Distillates.
Today’s EIA Report:
Storage levels in the US are at 80-year highs. Cushing is at 93% capacity, and US production has slowed fractionally. We are concerned about Crude products, such as Gasoline at 14-month demand lows and Distillates demand touching recessionary levels. Gasoline and Distillates are health indicators for a thriving economy. Large builds and lackluster demand of both products are common in slowing economic conditions.
We cross referenced the Federal Reserve Bank data base and found slow downs in manufacturing, transportation, commodity complex, and corporate earnings. Notably, the US economy is in an earnings recession as various transportation indexes from land to sea depict a slow down in activity. Vehicle sales for trucks are down 38% in March accordingly to the WSJ. Light auto sales have had a downside break of baseline growth, which started in 2009 after cash for clunkers helicopter drop by the FED.
So now, we have a better picture of why crude products are lacking demand side stimulus, it’s due to an economy slowing. What’s dangerous for crude products is shelf life, which can fluctuate a refiners run rate. If economic conditions are slowing refiners could take in less of a run leading to larger builds in crude.
Fundamentally, the notion of lower for longer is needed to clear the excess, as the US economy survived its first quarter of tightening. Signs of stress continue to widen the HY Spreads, which energy companies are commonly thought to be responsible, but contagion is spreading across other industries. Credit Ratings of energy companies have been slashed, and default rates are as high as Lehman Crisis levels. Bank exposure to HY Energy Debt is in question across US, CA, and EU banks. The narrative of “we have this contained” is being used in media, which is the same narrative used pre-Lehman. FX rates in the USD continue adding pressure, but have subsided as of recent. Tightening cycle, economic uncertainties, and majority of global central banks currently easing should relight the fire under the USD trade.
We tend to ignore the lies and manipulative comments from OPEC, and or Non-OPEC countries. The same story is in repeat from the mid-1990s when OPEC and Non-OPEC parties committed to freeze and or cuts. Years later the data showed a production increase and contradicted prior comments. If this is about market share, which it is, Saudi Arabia has no intentions to cut. We don’t see a resolution this month and have to look towards the annually OPEC meeting. We expect last minute jawboning comments from producers leading up to this months worthless meeting.
We reiterate the notion of lower for longer in prices to clear excess. We cite domestic and global slowdowns in economic activity. Fundamentals of WTI is a demand side story, and the US Economic landscape is in a slowdown trajectory, as with the rest of the world. Infrastructure storage remains highly stressed and continues to suppress spot WTI. HY Spreads remain wide signaling danger is ahead, which could be the exposure of large banks stemming from US, CA, and or EU. We maintain our unfair high call from prior note, with the reversion to the low 30s. This oil note is merely an update reiterating the prior note.
|March 30, 16 Oil Note-|
Last Oil Note (March 24), we issued an unfair high warning as our price ceiling of 36.50-40 projections from the March 6 Oil Note was satisfied. We are currently maintaining our unfair high warning with downside projections to the low 30s.
As of late, short sellers have been squeezed in a month long rally advancing more than +60%. The sentiment fueling the advancement has been extinguished, and a back to fundamentals approach has been initiated. Fundamentals for WTI are incredibly bearish. We see Domestic/Foreign bottlenecks in storage, slowing global economy, along with OPEC who cannot be trusted. We congratulate OPEC for truly confusing the WTI market while increasing output in March. This is contrary to the narrative provided one month back.