The recent oil market action was a typical bear market when all good news were ignored and even interpreted as bad while even slightly temporary bad got full credits.

Equities were also weak as buyers were on sidelines waiting for oil price resolution. 

Volumes have plunges. 

 

OPEC+ have cut production by 1.65mm bpd since May -  the market yawned

Nigeria production was in steep decline due to sabotages and leakage -  the market yawned.

Kurdish 475K bpd production was shut for 2 months with no restart in sight -  the market yawned.

Canadian wild fires caused shut downs of about 250K bpd production -   the market yawned

ABS has warned strongly about punishing shorts - the market yawned.

US gasoline inventories fell to critically low levels -  the market yawned

US distillate  inventories fell to critically low levels - the market yawned

 

Instead the market was focusing on slower than expected growth in China, potential US default on debts (highly unlikely from history), and slowing demand due to incoming recession. 

 

But the market completely ignores the fact that OPEC+ is in full control and watches actions closely.

 

 

SPR draws in recent years do not matter as always...it is the history. What matters is the currently remained 12 mm bbl release until the end of June....at about 2 mm bbl a week. So SPR action is still negative, not positive just yet.

 

 

We have lost 2 important weeks of draining crude inventories prior to the last week when exports fell in one week, imports rose in 2 weeks while US refiners were operating at low rates allowing product stocks to fall significantly below 5-year averages.

 

But the last week we've got a change...finally.

US inventories fell by 14 mm bbl including 12 mm bbl from commercials. That's a huge news. Commercials have declined to 456 mm bbl. Still elevated with some fat, but within sight to the neutral 440mm bbl milestone.

 

 

We are on the verge of the highest demand season.

Crude exports should stay at the last week levels.

Crude imports were 300K bpd lower than 4-week average last week. I can assume 500K bpd higher in coming weeks.

Adjustments were at 'low" 400K bpd. I can assume adding 500K bpd to 900K bpd for using NGL in mixed exports and transports....although it is less likely so much for summer blends.

 

Those 1 mm bpd extra supply would result in 7 mm bbl less draws weekly bringing total draws from 14 mm bbl to 7 mm bbl. 

Assuming 2 mm bbl from SPR commercials draws should be 5 mm bbl weekly on coming 6-week average. 

 

Such draws should help in drainage of 30mm bbl in 6 weeks by the end of June - bringing commercial stockpiles down to 426 mm bbl.

We would not only reach a neutral 440 mm bbl milestone, but be in the middle of towards next critical 400 mm bbl milestone.

The market will not yawn for sure as the comfortable feeling from bears and shorts will disappear. 

 

And we will have remained 9 full weeks of the high demand season until the Labor Day to break down 400 mm bbl with conviction....hopefully to 380 mm bbl

 

Note:

I didn't even count the rising refinery inputs by up to 1 mm bpd in coming weeks which is very likely.. This is a safety factor for the above estimates. 

US gasoline and distillate stockpiles are so low that refiners have no options as ramping up processing....just need better cracks that are improving daily. 

 

Best of luck,

romm