(Oil & Gas 360) – Much needing to be done and greater freedom for seeing and doing it, the direction we head needs a very profitable drilling boom fueling it.
Low expectations and Buy-Low opportunity is evident in the crude oil price down from over $90 to under $70. June through September last year the price of West Texas Intermediate (WTI) crude oil increased from $67 per barrel to $93 (Figure 3, blue line). This year June to now is down from above $84 to below $70 (red line). The sense of too-little supply tugged the price above $90 last year. The sense of 1) more-than-enough supply now and 2) oil shouldn’t be used anyway are providing another Buy-Low opportunity.
Last year’s price rise above $90 was helped by U.S. Commercial crude oil inventory falling 53 mmb, June to September. Low demand expectations and the sense that changed policies will soon have supply increase has inventory now at a multi-year low being ignored. U.S. commercial crude oil inventory down at 415 million barrels (mmb), an easy-to-see, multi-year low, two years ago (Figure 4, bold line) helped the price of crude oil, with Russia invading Ukraine rise above $124 per barrel (Figure 3). Inventory up to 467 mmb June of last year (blue line) had the price deflate down to $67. However, inventory then dropping tugged the price above $90. Now, the sense that OPEC+ will soon increase production, that fossil fuel shouldn’t be used and that the new Administration will soon have oil supply increasing has had the price drop below $70 again, also helped by Commercial inventory increasing 14.6 mmb the last six weeks to 427.7 (red line), despite that a multi-year low. And we don’t expect a bearish inventory increase like the first quarter of 2023. It happened with a big refinery run drop (Figure 5).
Price weakness of late, despite crude oil inventory down at a multi-year low is helped by the inventory increase of late happening despite refinery runs increasing, needing more. Commercial crude oil inventory increasing of late occurring despite more crude oil needed is evident in weekly refinery runs increasing from processing crude oil at a 15.590 million barrels per day (mmbd) rate as October began to 16.334 as November began (Figure 5, blue dot), up 0.754 mmbd or 5.3 mmb per week. And 16.057 the average rate the last four weeks (red line), 0.789 (5.2%) more than 15.268 last year (blue line). The price of WTI crude falling below $70 per barrel in March of 2023 was helped by inventory rising with the notable, sudden January 2023 refinery run drop (bold line). An unusual and sudden event.
Inventory increasing and prices decreasing are helped by few aware, net imports jumped last week, 11.7 mmb more supplied. What we view as a temporary, exaggerated supply increase that over, will help power the much needed, nicely-profitable price rise. U.S. crude oil imports averaging 6.044 mmbd the last four weeks and exports averaging 3.837 made 2.207 the average of net exports the last four weeks (Figure 6, red line). That is 0.903 more than 1.305 last year (blue line). However, net imports last week jumped 1.676 to average 3.390 (blue dot). A net 11.7 mmb more arrived. One-week net import jumps are not unusual. They occurred with the Memorial Day and Labor Day Holidays.
Our Bullish Outlook is powered by our prediction of oil demand notably exceeding oil supply, well above low consensus-expectations. The U.S. election will result in significant policy changes. One will be a switch to increasing U.S. oil supply, but long-lead-times will provide Wonderful, much needed long-term but not short-term relief. Also, much-needed efforts to increase Middle-East peace by reducing the funding that has greatly increased weapons supply will have Iran’s big oil production increase, during the current U.S. Administration, needing to be replaced. And, U.S. inventory of the major petroleum products that fuel growth having declined much (Figure 7, red line) need refinery runs increase much next, like they did two years ago (Figure 5).
By Michael D. Smolinski with Energy Directions for oilandgas360.com