In a market full of speculation, all we know is up.
Glad to be back, my teeming millions. Nothing like a day away to speak to a crowd of interested neophytes. Out of a room of fifty people wanting to know more about oil, I think I had at least forty eight drinking the Kool-Aid by the end. Slowly but surely we’re all getting used to the idea that crude oil wasn’t meant to be at $100, but it sure as heck wasn’t meant to be at $20 either. Goldilocks deserves a nice barrel of WTI at $65 and we’re doing our best to get there. Sooner or later the rest of the world is going to understand that it’s demand that dictates price and not supply.
For everyone that wants to argue that, we should start talking about “spare capacity” because if this we’re any other year, we’d be in a panic and running crude oil prices up to $200 or at least gasoline up to $4. We’re getting pretty thin up here when it comes to production and I’m feeling like the oil system is doped up on Xenadrine.
I’m not talking healthy Matthew McConaughey thin, I’m talking Nicole Richie. We can start with the mythical “oil glut” and cover crude first. Yes, I know that the world revolves around the United States and we’ve seen our supply rise to record levels. I also agree that it’s Canada that is supplying a lot more today to the United States than ever before. So far in 2015, we’re getting 3.0MM b/d of oil imported from the Great White North, which is a far cry from the 1.5MM just a few years back (2009).
On the other side of the argument though, we’ve backed out imports from the Saudis to an average of 958K b/d this year. Roll that back to 2010 and we’ve shaved off about 100K b/d (1.059) with an even bigger overall number from OPEC. Back in 2010 we’d consistently see over 1M b/d from Nigeria whereas now we consistently see a weekly goose egg (0). We’ve effectively backed out any and mostly all OPEC oil when you figure the Saudis are supply the Motiva JV (600K b/d). Now think about all that they are still pumping; 30M b/d. There’s not a lot of wiggle room there if the EU or China comes back around.
As for the United States, we are the king of our domain when it comes to crude. Domestic production is still slipping, albeit slowly (-7K last week), but it’s not crude that I’m concerned about. Right now we’re running our refineries at a solid 89% in 2015. Just for fun, I like to compare it to the year of Rock ‘n Roll of 2008 demand and $4 gasoline. Yeah, we started that year at 87% and running about 15MM b/d of crude. So far this year we’re running 15.7MM b/d and averaging 16.0MM the past four weeks.
Oh, and did I happen to mention the huge draw yesterday in gasoline and disty? We’re slowly creeping up to a point where enough is not enough and there’s not a lot of other choices. We are going to hit a point where the U.S. refining system can’t do much more. When that point comes, there’s a price to pay for imports and it’s not going to be all that pretty. Still we all run around believing that we have it all when all we got is a rubber biscuit.
CRUDE -1.5M – Since I was one of the few to boldly predict a crude draw last week, I am sure that many are expecting as much this week. Well I am, but I’m not all that hyped about seeing this come in as too big of a number. We’ll watch for imports to bounce back a little bit and we’re going to see US production fall. I think all of that comes in at a “normal” sized draw here.
GASOLINE -2.0M – Oh you can try to produce all you want, but the demand is going to come in hard. We might see a number bigger than this as long as imports continue to trickle in. Production should increase a little, but America has had a long winter and people are getting out in droves to hit the road. Not to mention the new 200K+ employed that are trekking it to and from the job.
DISTILLATE +1.5M – Sure everyone is working, but nobody is up to buying these days. That’s putting a little pressure on the diesel demand that has been the foothold of the oil complex for the past few years. We might get some love from the export market because nobody makes it better and definitely not cheaper.
UTILIZATION +0.5% - It’s hard to push the refineries much higher because there’s not much higher we can go.
CUSHING -1.25M – Funny how that pipeline thing works in our favor now that refiners are back producing and not fixing.