Analys
Crude oil comment – Surplus stored here or there?
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Crude oil comment – Surplus stored here or there?
- Graph 1: Deep WTI contango – Costly or impractical to store oil in the US mid-continent
- Graph 2: US crude, gasoline and distillate stocks
Crude oil comment – Surplus stored here or there?
Today we will have the publishing of US oil inventory data at 17.00 CET. Since the start of August last year total commercial US crude and product stocks have increased by 102 million barrels. During that period we have only seen 5 weeks with declines in the net change in stocks constituted by crude + gasoline + distillates. The general take has been that the US holds a substantial capacity of the yet remaining free storage capacity for oil globally. Thus not surprisingly that has also been where we have seen the solid accumulation in oil inventories. The US is a huge net importer of oil, still the second biggest oil importer in the world. Thus when we see consistently increasing oil inventories in the US it basically means that the US is importing more oil than it needs. This has of course been impacted by logistical issues within the US regarding location of production versus consumption and crude qualities and refinery specs in combination with the earlier crude oil export ban.
In last week’s data release we saw that the net increase of crude, gasoline and distillates only came in at a +1.8 mb gain. That was the lowest gain since late December since which the average weekly gain has been running at about +10 mb per week. The Bloomberg consensus for today’s US oil inventory data released points to a total rise of 2.4 mb. The partial data set aggregated by API from its members in the US oil space did however point to a solid total decline of 4.6 mb with a significant decline in US crude stocks as well as distillates:
So what is driving this change in pattern? No more stock building in the US? On paper it looks like the US Pad II should still hold a substantial amount of free, available storage capacity for both crude and products. However, what the deep contango in the WTI curve is telling us is that it is becoming very expensive to store oil in the US mid-continent. Yes, crude stocks in Cushing Oklahoma are close to full. As such the contango in the WTI crude oil curve should be deep. However, if there was a substantial amount of storage capacity which was low cost to use, easy logistics and easily operational readily available in the vicinity of Cushing and in the Pad II region, then the close to capacity and deep contango in the WTI curve should drive oil away from Cushing and into other storage facilities in Pad II. Thus again, the deep WTI contango probably tells the market that the remaining available storage capacity in Pad II in the US may not be very cheap to utilize. This could be thus be due to several issues like cumbersome logistics or old age or that storage space is there but it is not really operationally available.
Looking at the WTI forward curve in comparison with the Brent curve the WTI curve’s accelerating, deepening contango this year is basically shouting out: It is becoming increasingly expensive to store oil in the US mid-continent. Go and store oil somewhere else.
If we today see that total US oil stocks are actually declined in the US last week as indicated by the API numbers then it is likely to have a bullish impact on oil prices. Especially if it is combined with for example a further decline in US crude oil production (data to be published together with inventory data today) in combination with the current ongoing oil price rebound on the back of the OPEC + Russia talks on production freeze. It is going to be perceived as bullish partly because it may be interpreted as if the global oil market is less in surplus now than 3-4 weeks ago. This we think is the wrong interpretation. The market is still running a surplus of some 1.5 mbpd which needs to be stored somewhere. If stocks don’t continue to rise in the US it basically means that stocks will need to rise outside of the US. It does mean that the deep contango in the WTI curve may ease a bit while the contango in the Brent curve will deepen. As such it is on the margin supportive for the WTI front month prices versus a bearish impact for the Brent front month price.
Thus do not jump on the conclusion that declining stocks in the US means that there is no global surplus. It basically means that surplus is stored somewhere else.
Graph 1: Deep WTI contango – Costly or impractical to store oil in the US mid-continent
Graph 2: US crude, gasoline and distillate stocks
Yellow line is if further inventory rise follows last year’s trende from here.
Normally total US crude, gasoline and distillate stocks don’t increase much.
Thus the increase last year and so far this year is a reflection of the global surplus
Thus if it is becoming increasingly costly to store oil in the US then the stock building has to take plase somewhere else.
Kind regards
Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking
Analys
Stronger inventory build than consensus, diesel demand notable
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Yesterday’s US DOE report revealed an increase of 4.6 million barrels in US crude oil inventories for the week ending February 14. This build was slightly higher than the API’s forecast of +3.3 million barrels and compared with a consensus estimate of +3.5 million barrels. As of this week, total US crude inventories stand at 432.5 million barrels – ish 3% below the five-year average for this time of year.
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In addition, gasoline inventories saw a slight decrease of 0.2 million barrels, now about 1% below the five-year average. Diesel inventories decreased by 2.1 million barrels, marking a 12% drop from the five-year average for this period.
Refinery utilization averaged 84.9% of operable capacity, a slight decrease from the previous week. Refinery inputs averaged 15.4 million barrels per day, down by 15 thousand barrels per day from the prior week. Gasoline production decreased to an average of 9.2 million barrels per day, while diesel production increased to 4.7 million barrels per day.
Total products supplied (implied demand) over the last four-week period averaged 20.4 million barrels per day, reflecting a 3.7% increase compared to the same period in 2024. Specifically, motor gasoline demand averaged 8.4 million barrels per day, up by 0.4% year-on-year, and diesel demand averaged 4.3 million barrels per day, showing a strong 14.2% increase compared to last year. Jet fuel demand also rose by 4.3% compared to the same period in 2024.
Analys
Higher on confidence OPEC+ won’t lift production. Taking little notice of Trump sledgehammer to global free trade
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Ticking higher on confidence that OPEC+ won’t lift production in April. Brent crude gained 0.8% yesterday with a close of USD 75.84/b. This morning it is gaining another 0.7% to USD 76.3/b. Signals the latest days that OPEC+ is considering a delay to its planned production increase in April and the following months is probably the most important reason. But we would be surprised if that wasn’t fully anticipated and discounted in the oil price already. News this morning that there are ”green shots” to be seen in the Chinese property market is macro-positive, but industrial metals are not moving. It is naturally to be concerned about the global economic outlook as Donald Trump takes a sledgehammer smashing away at the existing global ”free-trade structure” with signals of 25% tariffs on car imports to the US. The oil price takes little notice of this today though.
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Kazakhstan CPC crude flows possibly down 30% for months due to damaged CPC pumping station. The Brent price has been in steady decline since mid-January but seems to have found some support around the USD 74/b mark, the low point from Thursday last week. Technically it is inching above the 50dma today with 200dma above at USD 77.64/b. Oil flowing from Kazakhstan on the CPC line may be reduced by 30% until the Krapotkinskaya oil pumping station is repaired. That may take several months says Russia’s Novak. This probably helps to add support to Brent crude today.
The Brent crude 1mth contract with 50dma, 100dma, 200dma and RSI. Nothing on the horizon at the moment which makes us expect any imminent break above USD 80/b
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Analys
Brent looks to US production costs. Taking little notice of Trump-tariffs and Ukraine peace-dealing
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Brent crude hardly moved last week taking little notice of neither tariffs nor Ukraine peace-dealing. Brent crude traded up 0.1% last week to USD 74.74/b trading in a range of USD 74.06 – 77.29/b. Fluctuations through the week may have been driven by varying signals from the Putin-Trump peace negotiations over Ukraine. This morning Brent is up 0.4% to USD 75/b. Gain is possibly due to news that a Caspian pipeline pumping station has been hit by a drone with reduced CPC (Kazaksthan) oil flows as a result.
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Brent front-month contract rock solid around the USD 75/b mark. The Brent crude price level of around USD 75/b hardly moved an inch week on week. Fear that Trump-tariffs will hurt global economic growth and oil demand growth. No impact. Possibility that a peace deal over Ukraine will lead to increased exports of oil from Russia. No impact. On the latter. Russian oil production at 9 mb/band versus a more normal 10 mb/d and comparably lower exports is NOT due to sanctions by the EU and the US. Russia is part of OPEC+, and its production is aligned with Saudi Arabia at 9 mb/d and the agreement Russia has made with Saudi Arabia and OPEC+ under the Declaration of Cooperation (DoC). Though exports of Russian crude and products has been hampered a little by the new Biden-sanctions on 10 January, but that effect is probably fading by the day as oil flows have a tendency to seep through the sanction barriers over time. A sharp decline in time-spreads is probably a sign of that.
Longer-dated prices zoom in on US cost break-evens with 5yr WTI at USD 63/b and Brent at USD 68-b. Argus reported on Friday that a Kansas City Fed survey last month indicated an average of USD 62/b for average drilling and oil production in the US to be profitable. That is down from USD 64/b last year. In comparison the 5-year (60mth) WTI contract is trading at USD 62.8/b. Right at that level. The survey response also stated that an oil price of sub-USD 70/b won’t be enough over time for the US oil industry to make sufficient profits with decline capex over time with sub-USD 70/b prices. But for now, the WTI 5yr is trading at USD 62.8/b and the Brent crude 5-yr is trading at USD 67.7/b.
Volatility comes in waves. Brent crude 30dma annualized volatility.
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1 to 3 months’ time-spreads have fallen back sharply. Crude oil from Russia and Iran may be seeping through the 10 Jan Biden-sanctions.
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Brent crude 1M, 12M, 24M and Y2027 prices.
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ARA Jet 1M, 12M, 24M and Y2027 prices.
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ICE Gasoil 1M, 12M, 24M and Y2027 prices.
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Rotterdam Fuel oil 0.5% 1M, 12M, 24M and Y2027 prices.
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Rotterdam Fuel oil 3.5% 1M, 12M, 24M and Y2027 prices.
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