Thirsty Thursday: An Inventory Report (11/3/22)

Posted: November 3, 2022
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Welcome back to another Thirsty Thursday, the most entertaining hydrocarbon inventory report on the internet! Just like that Halloween has come and gone and we are onto a new month. This week’s cocktail is a fall spin on the classic Moscow Mule. The fall edition, called the Apple Cranberry Moscow Mule, starts like any other Moscow Mule, same vodka, lime juice, and ginger ale, however, you spice it up by adding a splash of cran-apple juice and garnishing it with, you guessed it, cranberries and apple slice. So mix a few up, grab a friend and let’s dive into this week’s report.

Photo by Amy Vosters on Unsplash

Whenever we see the EIA forecast off from the actual inventory number there tends to be some movement in the markets, a pattern that holds true this week. The EIA had forecasted a slight build of 367,000 barrels and reported a realized draw of over 3 million barrels.

If you thought the EIA did a poor job of forecasting this past week, the API will let you down. A forecast of over a quarter million barrel build against a draw of 6.5 million barrels is unexpected. Now, why are we seeing such large unexpected draws?

One likely reason is that the SPR releases during the week were at their lowest volume since earlier this year, meaning we aren’t seeing an abnormal-sized draw this week, but rather a more accurate-sized draw than we are used to seeing the past several months. The SPR has 399 million barrels of oil left, down only ~2 million barrels from the week prior. We are beginning to more clearly see how the crude inventories in the US are moving now that the SPR is no longer making as big releases.

If this week is any sign of how future weeks will look with reduced or non-existent SPR releases, we will be seeing many more draws. Demand remains strong lately and refineries despite operating near peak capacity, have kicked it up a notch to increase output, further reducing inventories. With the end of SPR releases soon, oil inventories may get even tighter.

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

Regardless of whether the OPEC+ cuts were just on their output quotas or actual output, the desired effect has been reached. Oil has its first monthly gain in 6 months. At the time of writing WTI sits at $88.86 and Brent at $95.36. The tighter supply gets the higher the price tends to go, so the only question left is how high?

Natural gas prices dipped during the week by over 80 cents and quickly recovered to $6.102 where it is now at the time of writing. Upwards pressure is coming from cooler weather in many parts of the country, however, that is countered with downward pressure from fears of LNG exports continuing to remain stagnant.

Gasoline demand continues to slip, however, tightening supply is keeping prices afloat for now. Many refineries are increasing out of gasoline, contributing to the shrinking inventories. With the EU’s oil embargo on Russia set to start on Dec. 5, inventories across the world will likely become tighter too.

National gas price average gas increased overall, however, across states the average has been volatile the past week. For example, California’s average is now just $5.490, while last week it was $5.644, down over 10 cents in a week, but still the most expensive gas in the country. Meanwhile gas in Wisconsin has increased by over 20 cents in the same time frame.

We are seeing and feeling the effects of restricted production and refining capacity in the country. What is now widely known as a “diesel crisis” may get even worse than it is now before it gets better. This week diesel prices have remained consistent with last week’s, however, over the last year has increased by $1.70 at least! There simply is not enough supply to meet current demand, and one way the markets sort out issues like this is by the increasing price until demand falls. Propane inventories are soaring likely due to reduced manufacturing of products such as plastics as a result of sky-high diesel prices, the most commonly used fuel to transport items around the world.

I hope you are as excited as I am to take a look at next week’s numbers, especially with the oil sanctions on Russia being thrown into the mix. Make sure to come back next week for a cocktail recipe and report of all the inventory numbers you could want. Have a good week and stay safe out there, cheers!

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