• 2 minutes California to ban gasoline for lawn mowers, chain saws, leaf blowers, off road equipment, etc.
  • 6 minutes China and India are both needing more coal and prices are now extremely high. They need maximum fossil fuel.
  • 11 minutes Europeans and Americans are beginning to see the results of depending on renewables.
  • 8 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 3 hours Monday 9/13 - "High Natural Gas Prices Today Will Send U.S. Production Soaring Next Year" by Irina Slav
  • 27 mins The Climate Scare Stories Began With Far Left Ideology Per GreenPeace Co-Founder
  • 1 day "A Very Predictable Global Energy Crisis" by Irina Slav --- MUST READ
  • 44 mins Putin and Xi have decided not to attend the Climate Summit in Glasgow
  • 23 hours Two Good and Plausible Ideas about Saving Water and Redirecting it to Where it is Needed.
  • 3 days Did China cherry-pick the factors that affected the economic slow-down?
  • 2 days Are you aware of Oil Price short videos on our energy topics?
  • 1 day "Here is The Hidden $150 Trillion Agenda Behind The "Crusade" Against Climate Change" - Zero Hedge re: Bank of America REPORT
  • 2 days Is China Rising or Falling? Has it Enraged the World and Lost its Way? How is their Economy Doing?
  • 2 days NordStream2

Breaking News:

California Gasoline Prices Are Spiking

What’s Holding Nuclear Energy Back In The U.S.?

What’s Holding Nuclear Energy Back In The U.S.?

On paper, nuclear power appears…

Oil And Gas Stocks Are Popular Once Again

Oil And Gas Stocks Are Popular Once Again

Energy stocks, particularly oil and…

Mexico’s Government Is Suffocating Its Energy Sector

Mexico’s Government Is Suffocating Its Energy Sector

Mexico’s destructive energy policy changes…

Rakesh Upadhyay

Rakesh Upadhyay

Rakesh Upadhyay is a writer for US-based Divergente LLC consulting firm.

More Info

Premium Content

Inventory Drawdowns Won’t Boost Oil Prices

During the next three months, various analysts expect crude oil inventory drawdowns to increase, providing support to crude oil prices. However, post-September, inventory build-up is likely to accelerate, putting a cap on the oil rally.

With expectations of restoration of Canadian supply, supply outages are likely to reduce. Oil production is likely to be supported by high oil prices while demand increase is already priced in. The main variable that will affect prices is the crude oil inventory, something which traders are likely to follow closely.

(Click to enlarge)

The chart above shows the seasonal crude oil inventory drawdowns from June to September. Even last year, crude oil drawdowns were large, yet the surplus continued to inch higher, which eventually led to a drop in crude prices. The current season starts with crude oil inventories at 531.5 million barrels as of 10 June, according to the EIA. The latest weekly drawdown was only -900,000 barrels against an expectation of -2.26 million barrels. Related: Slavery At Sea: The Ugly Underbelly Of Oil Shipping

The current inventory levels are 152 million barrels above the 2010-2014 average, according to a Deutsche Bank research report. The bank believes that after slow draws in the next two weeks of June, the drawdowns will increase from July and pick up pace in August. By September, they expect the inventories to reduce to 135 million barrels above the average.

The Bank expects a larger crude oil inventory drawdown of -2.88 million barrels every week, compared to the historical average of -1.65 million barrels every week, but it will be insufficient to notably shrink the surplus.

In order for the elevated inventory levels to reach historical norms by Labor Day, crude oil stocks will have to decline by 12 million barrels every week, according to S&P Global Platts analysis.

There are two important factors that can accelerate the drawdowns.

Gasoline demand increases during the U.S. summer season, but the gasoline inventory is 10 percent above the five-year average. Ample gasoline stocks are a deterrent to the refiners, who desist from turning crude oil into gasoline. A drawdown on gasoline stocks will encourage the refiners to pick up their utilization. Related: OPEC May Be Forcing Venezuela Into Regime Change

The current refinery utilization of 91.5 percent is lower compared to last year’s 93.1 percent. Hence, as the refinery utilization picks up in the summer, it will leave a greater scope for drawdowns to increase, according to the Platts analysis.

The second data to watch is the crude oil imports, which tend to increase during the summer season and then taper off at the end of the year. Deutsche Bank believes that as crude imports have not responded to the seasonal increase, it will remain subdued at 7.8 million barrels per day till the end of the year.

If the oil imports continue at 7.8 million barrels per day, the crude surplus will increase from 135 million barrels in September to 185 million barrels by the end of the year. However, if the crude imports drop to 7.2 million barrels per day, the surplus inventory will decrease from 135 to 123 million barrels.

Though oil imports depend on a number of factors and it is difficult to establish their combined effect, the declining contango has made storage of crude unprofitable. This might restrict oil imports during the rest of the year, but not to the extent needed to shrink the surplus.

Hence, the inventory drawdowns might only support prices rather than boost them a lot higher from the current levels.

By Rakesh Upadhyay for Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Chuck M. on June 20 2016 said:
    "If the oil imports continue at 7.8 million barrels per day, the crude surplus will increase from 135 million barrels in September to 185 million barrels by the end of the year."

    Respectfully, that math doesn't work. Let's assume imports stay at your 7.8 mbpd, exports stay at the current .49 mpbd, and production averages 8.45 mbpd (from the current 8.7 to the projected 8.2) and refinery production is flat to LY for the remaining 29 weeks of the year at 16.36 mbpd on average (it's actually up 1%+ YTD); or in the equation (7.8 - .49 + 8.45 -16.36 = -.6 mpbd draw). That's a 600 thousand bpd draw on average for the remainder of the year, or 122 million draw down in inventory from now until year end 2016. That draw down would still result in stocks slightly above 400 million by year-end compared to a 5-yr avg of about 384 million for year end, but it's close. That's why prices are rising.
  • mirriam ndunge on June 22 2016 said:
    informative.

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News