Thirsty Thursday: An Inventory Report (10/27/22)

Posted: October 27, 2022
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Welcome back to another Thirsty Thursday, the most entertaining hydrocarbon inventory report on the internet! Only a few more days until Halloween, while your kids are out gathering treats make sure to treat yourself this weekend by making some Hocus Pocus Jello Shots. Again, it is difficult to find royalty free pics of these guys so enjoy this shot of some generic Jello drinks. Hocus Pocus Jello Shots are made with parts Jello, water, and your favorite brand of vodka, topped with whipped cream and Halloween inspired sprinkles.

Photo by Girl with red hat on Unsplash

We are looking at a good sized build for the week ending October 21 in crude oil inventories of just over 2.5 million barrels. The EIA had forecasted a build of barely over 1 million barrels. Part of the build is again due to another release from the SPR. It is important to note that while we do see a build here, U.S. exports have hit records high as other countries take advantage of a weakening dollar.

The API’s forecast was correct in direction and off in magnitude. Their expected build of 200,000 barrels of oil pales in comparison to the actual build of over 4.5 million barrels. With oil production remaining relatively flat, and a release from the SPR, it makes sense that this week we would see a build.

While the final release of oil from the SPR was announced last week, it still takes a few weeks for it to actually happen. This past week there was a 3.4 million barrel release, leaving the SPR with a mere 401.7 million barrels left, the lowest level since May of 1984! I would expect the line in the graph below to start moving the other direction in the first few months of next year.

Oil inventories have seesawed for the last year or so, around the same time the SPR began releasing large amounts of oil back in November of 2021. Perhaps after SPR oil isn’t making it into inventories we will see more steady week-to-week numbers. It seems oil inventories are fighting to stay inside the 5 year range, but as it typical for Nov/Dec, it will start to dip and it may leave the usual range again.

This weeks U.S. crude oil inventories according to the EIA

It’s been a good week for oil prices all around with WTI and Brent moving up over $5 from it’s weekly low to it’s weekly high where it now sits. Brent still has a price advantage over WTI as it sits at $97.15 at this moment, while WTI is at $89.48. Of course, part of this jump in the last day is due to the EIA’s release of the above information on crude inventories. Oil price hangs in the balance as Biden tries to balance SPR releases with OPEC+ production cuts.

Since last week, natural gas prices made a comeback after a month or so of declining. That comeback peaked on the 25th at over $6, since then natural gas has fallen over $0.5 to where it now sits at $5.450, likely due to declining gas exports, increasing domestic supply, and decreasing domestic demand.

Biden has a bit of a fuel crisis on his hands, and not just with diesel which I’ll get to a little later on. Gasoline stocks are dipping lower and lower, down 6.16% from the same time last year. Biden has been in talks with DOE Secretary Jennifer Granholm about the possibility of reopening a few old refineries to jumpstart inventories. Something that industry has pointed out is a long process that will take years and millions or even billions to accomplish. Perhaps we will see increased imports in the near future if gas prices begin getting out of hand again.

Unusually, it’s not only gas inventories that are dipping, but gas prices too. It seems prices are lagging behind inventories by a week or two, so we may soon start to see higher prices if the Biden administration doesn’t get inventories sorted. Gas this week is down about 8 cents this week to $3.760 across the country. The highest in the country is still California at $5.644 and lowest is Georgia at $3.179 average. The only thing keeping gas prices in check for now is low demand.

The diesel crisis continues, distillate inventories are getting critically low. Demand is still raging despite increased prices for things like diesel and heating oils. This is the lowest inventory levels have been since 1982. Retail diesel is currently going for $5.309 on average across the country as seen above, that’s over $1.5 more than gasoline. Because distillate stocks re so closely tied to shipping and manufacturing it will take an economic slowdown for stocks to recover, something that may happen if the prices shoots up high enough.

It may seem that we are in for an expensive winter with distillate prices on the rise, increasing the cost of nearly everything transported by diesel, which is nearly everything… There is still some hope around the corner in the form of higher oil prices though, something we in the industry are quite fond of! Have a great week, and if you are here in Colorado, enjoy the snow, cheers!

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