Extract from crude oil:
As the oil industry gathered for CERAWeek in Houston, Venezuela and US shale production dominated conversations. Surprisingly, tight oil independents were far less upbeat on production prospects, as returning wealth to shareholders seems to be the key focus at a time—they tell us—that the sector is losing favour among investors. The surge in production announced by Exxon and Chevron (even after stripping out natural gas, as the figures quoted were in mboe/d) has also spooked independents, even though there is plenty of scepticism around some of these growth figures. Importantly, upstream, midstream and service companies all agreed that production was likely flat to down q/q in Q1 19, with several pipe commitments going unfulfilled; additionally they expect Q2 19 production to only grow marginally before the big push higher in H2 19. Deteriorating quality of DUCs, rising parent-child issues and the lightness of the crude were the recurring themes that added to the pessimism. Our production figures already reflect a similar profile, albeit the pick-up in production materialises from mid Q2 19 and is one of the key reasons why despite believing that Cushing stocks will be rising through Q2 19, the scale of the builds will be lower than market expectations and tank tops are unlikely. Indeed, today’s data show a 0.7 mb draw for Cushing, so the hub may find it tough to build materially over March. We see Cushing stocks building by 2.1 mb this month.
Extract from oil products:
Us gasoline inventories fell by 4.6 mb w/w to 246.1 mb for the week ending 8 March. PADD 2 inventories fell by 1.5 mb w/w (-3.2 mb y/y) to 56.9 mb, as Chicago gasoline prices continued to firm, with refiners and marketers buying spot gasoline amidst tight supplies in the Midcon. Regional maintenance activity, including an expected turnaround at Marathon’s 0.25 mb/d Robinson refinery, has allowed inventories to drift lower, supporting prices in the region. The Buckeye Complex regular CBOB continues to trade at a premium to Chicago, with the differential increasing by 1.5 c/gal since late last week. Gasoline prices in the USGC fell following the roll to the prompt cycle 17 of the Colonial Pipeline, despite PADD 3 stocks falling by 1.7 mb w/w (+0.6 mb y/y) to 85.5 mb. Although still in negative territory, trading space for line 1 ticked up this week, as USGC weakness should increase demand to ship gasoline along the pipeline.