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Planning for Post-OPEC Cuts Part 3: Signals from the United States

Minneapolis, MN | May 9, 2023 | By: Steve Sinos, Blue Lacy Advisors, LLC


Three Things

  1. In our first two articles, we saw reasons why OPEC might have responded to changes in demand, but there were signs that markets were firming. Global supply was observable; demand was stable.

  2. In this final article, we look at how the US contributed to the global trend. Overall, it seemed that the US was in a similar pattern, dependent on global demand to support exports, which led to a turnaround in the pace at which we withdrew from commercial storage in recent weeks.

  3. The data isn’t all bullish, though. Certain signals, including tightening spreads, suggest a limit to how far crude can run based on the OPEC announcement alone.

US Storage and Flows


We broke up our look at the OPEC cuts into three parts to look at the significant observable variables we regularly track to gauge the pace and direction of market changes over time. In the first two editions, we looked at OPEC and the most significant Asian consuming countries, China and India (You Don't Have to Understand Why OPEC Cuts. You Can Have a Plan for How to Respond). Next, we looked at European crude oil import flows and storage trends leading up to the announcement (Planning for Post-OPEC Cut Part 2: European Flows and Refined Products Price Trends). We summarized our weekly process for tracking fundamental and technical data. We saw that there was reason to believe that global demand and flows may have been softer than OPEC wanted through February, but we could see more recent signs of firming. That leaves us to consider the US’s role in global markets. As one of the world’s most productive oil suppliers and one of the largest consumers, US flows have the potential to affect global prices. Additionally, the US publishes more data than any other global contributor, much of which is free. As such, it is the center of endless debate, i.e., the source of a lot of noise.


US crude stocks, in particular, have gotten a ton of attention because the Biden Administration released barrels from the Strategic Petroleum Reserve. The change in total crude storage is an important variable to consider, so that’s where we will start. Over the last year, the EIA monthly estimate of total crude in storage (SPR + Commercial Storage) has been on a downward trend, driven by the aforementioned release from the SPR. The end of February (the last official numbers from the EIA) combined crude in SPR + Commercial Storage say at ~844mm bbls, >144mm bbls below February 2022. This includes a 207mm draw from the SPR. Commercial storage was actually ~63mm bbls higher at the end of February 2023 compared to February 2022. Weekly estimates suggest the pattern continued through March before commercial inventories dropped by ~11mm bbls in April. As of April 21, 2023, the EIA estimated commercial stocks of ~460mm, with another ~367mm in SPR.

*This summary is based off May 1, 2023


A free excerpt, such as this one, will be published on a delay periodically. This is an excerpt from Blue Lacy Advisors, LLC's (“Blue Lacy”) weekly commentary for clients, which is based on a collection of models, research/analytical subscriptions, and bespoke work. Each week Blue Lacy explores how market drivers included in these analyses might affect or be used in clients' planning, budgeting, and execution of strategy. Call Blue Lacy to make an appointment today!


 

Meet the Author!


Phone: +1-832-413-3124


Steve has spent his career in strategy, risk, trading, and investment. He works with investors to source investments in opportunistic or high growth sectors, with particular interest in early-stage companies solving clearly defined problems.


He is currently a Managing Partner with Blue Lacy Advisors LLC, giving management teams and investors confidence in their decision making by supporting strategic planning and execution, risk management, commodity trading, and market analysis.


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