We expect the EIA to report a 1.5MM bbl crude inventory build for the week ended 6/7, which compares unfavorably to consensus’ 1.0MM bbl draw. Our number assumes lower net imports exports and slightly stronger refinery runs w/w. However, we also factor a +0.6MM bpd supply adjustment, which we’ve calibrated using data from Rystad showing April well completions were down vs March. Since we believe the supply adjustment represents unaccounted for production, fewer completions m/m, coupled with the EIA’s higher modeled L48 production figure, should yield a smaller adjustment factor than what we’ve seen recently (and then trend even lower in the coming weeks). See our note from yesterday for more detail.
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Year to date, EIA reported US commercial crude inventories are up ~41MM bbl. The cumulative supply “adjustment” reported in the EIA’s weekly balance sheet is +46MM bbl. Historically, the supply adjustment was an error term used to correct anomalies in import/export timing, refinery runs, or one-off production adjustments. Now, the adjustment embeds significant production trends dislocated from rig count-based models. In all probability, the EIA will never fix the issue, and so what follows in this paper is a dive into “adjustment factor” trends and analysis of data-driven leading indicators to help mitigate the unpredictability of weekly EIA forecasts and reports.
We expect the EIA to report a 2.6MM bbl crude inventory build for the week ended 5/31. This compares unfavorably to consensus’ 1.4MM bbl draw. Our number assumes a large increase in imports and essentially flat exports w/w, offset partially by an uptick in refinery runs. Lastly, we add the trailing 4-week average supply adjustment (+0.4MM bpd, +3.1MM bbl for the week).
We expect the EIA to report a 1.4MM bbl crude inventory draw for the week ended 5/24. This is slightly stronger than consensus’ 0.7MM bbl draw. Our number assumes moderately lower net imports and stronger refinery runs w/w, plus we are incorporating the trailing 4-week average supply adjustment (+0.4MM bpd).
Over the last two days, the Energy sector has been hit hard by a combination of market headwinds and WTI moving below $60/bbl. While volatility may remain elevated, we see crude oil higher by YE19 and believe the pullback has provided an opportunity to buy high conviction stocks. Additionally, sector performance has looked somewhat rational in this risk-off environment (Integrateds significantly outperforming beta E&P), but there may be some buying opportunities for stocks that have moved out of character. Below we highlight stock thoughts for each subsector.
We refresh our 2019 global oil supply view after 1Q19 US E&P updates and ex-US supply trends visible in ClipperData. The US component now implies US exit-exit production growth in 2019 between 0.9MM and 1.1MM bpd, vs 0.8-1.0MM bpd from our previous calculation. Year-to-date strength in oil prices remains driven on the supply side by US E&P and OPEC discipline in tandem – US E&P earnings season was thus constructive for oil prices as we approach the physical market upside catalyst in 2020: higher demand for light/sweet crude by refineries seeking to reduce fuel oil production for IMO 2020.
“Adjustment factor” in EIA supply has been very lumpy, swinging from massive unaccounted for crude volume to a negative adjustment last week. This likely reflects large well pad development, shorter haul imports replacing Arabian Gulf volumes, and lumpy exports with China not participating. For this week, we zero out the adjustment factor, but the range of potential outcomes is wide.
CVX hosted a sell-side lunch with CFO Pierre Breber and most of the IR team, including GM Wayne Borduin. The purpose was to “put a bow” on the APC process after announcing the company would not counterbid against OXY and will take the $1B break-up fee. Concurrently, CVX increased its buyback authorization from $4B to $5B, which will remain the annual run-rate going forward. Without the APC assets, our CVX price target remains $151. This note will be brief as we simply reset our model and assumptions to a month ago.
We expect the EIA to report a 2.1MM bbl crude inventory build for the week ended 5/3. That compares to consensus’ 1.2MM bbl build. Our number assumes lower net imports plus stronger refinery utilization w/w. To better calibrate our forecast with what the EIA has been reporting, we are modeling a +550K bpd supply adjustment. Note that each of the last 6 weeks have a had a substantially positive adjustment factor, helping drive the large crude builds we’ve seen recently.
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