Oh this is definitely going to get me on the Today show.
Hmm, OK, maybe at least Maury. Did I ever tell you about the time I was on Jenny Jones? Yeah I know, that’s probably a bit before most of the teeming millions can remember, but let’s move on. I would like to highlight $50 because I was one of the first to stand up and say it, loud and proud. I have been the one who has pointed out the continuing decline of U.S. crude oil production. I’ve shouted from the mountain top as we have dropped nearly 300K b/d (297K) since the second week of January 2016 and practically consecutively week after week.
I’ve also been the one to politely point out that of those 15 weeks, Saudi Arabia has imported over 1M b/d and has done so also practically consecutively spare for four of those weeks. Actually last week just broke a streak of nine weeks as they dipped to 756K. That’s quite the drop by the way and I’m starting to wonder what that is going to look like in the weeks to come.
While we’re on the subject of imports, let me liber up a little. OK, good. Now let me pat myself on the back while I go on again about the high gasoline imports. Last week we hit 898K b/d of gas imports, the highest since October 2015. If anyone wanted to brag about the build of 1.5M barrels yesterday, go figure we had to pay a premium to bring those here.
The bottom line in oil is that if you have to import it these days, it’s going to drive the price higher. We’re not talking about Furbys and Beanie Babies coming in from China, we’re talking about fossil fuels that the world is dying to jack up to consumers that can’t say no.
Here’s the real concern of mine after the stats yesterday; distillate. I’ve talked about this ad nauseam to many traders and consumers and nobody has any idea where the demand is coming from. Normally I’d brush that off as just coincidence, but this 4.2M b/d average demand we’ve had the past two weeks is pretty chunky. If that demand hangs around because there really is a reason...panic at the disco. See part of the reason that we’ve been struggling with US production of gasoline is because we have to provide some yield for distillate production.
Usually we can give up about 30% of refinery production to disty with about 60% to gasoline. The other 10% is for things like residual fuel, propane and I believe Jim Beam. The tricky part is that we’ve not started the year with demand this high for gasoline since that record year in 2007. Just so happens that we also started that year with disty demand well over 4M. I know we’re not anywhere near that distillate demand so far, but running two weeks over 4M has me wondering. Here’s where everything comes together like a plan for the A-Team.
Back in 2007, WTI was trading well above $80. Gasoline was well above $2.70. Distillate was above $2.90. We are nowhere near that, but I get it, we have a lot more supply. Still I have to question just how long that supply can last while we keep dropping production and importing more. Importing more and now seeing fewer barrels from our good friends in OPEC. Just saying, $50 is a short jump, $60 is a nice random walk away.