Refiners work overtime as crude inventories drop

Refiners jingle bell rocked out gasoline production to an astounding 10.129 million barrels a day! That exceeded the Energy Information Administrations (EIA) implied gasoline demand number that came in at 9.091 million barrels, apparently up from last week’s Thanksgiving report where most people supposedly stayed home. The production over demand led to 5.7 million barrels increase in supply that was double the markets expectations.

This came as U.S. crude supply continued to plunge, falling by 5.1 million barrels led by a 3.317 drop in the Cushing Oklahoma delivery point. That was the fourth drop in a row and the biggest draw down in eight years. The supply drop in Cushing was partly related to the ongoing fallout from the Keystone pipeline leak, near record refinery, gasoline and distillate production is going to keep the demand for crude strong as refiners look to make up for below normal distillate supply. Refinery crude runs did fall slightly by 243,000 barrels per day as runs fell to 93.4% of capacity. Still, it is a very high capacity rate to be running at anyway. Over all crude stocks are at the lowest level since October 2015.

Yet, despite refiners near record production and their best efforts, there was no gain in distillate stockpiles, which fell 1.4 million barrels vs. expectations for a 902,000-barrel increase. The EIA reported an increase in U.S. oil output to 9.78 million barrels a day last week but even the EIA is skeptical of that number. U.S. production is on the rise but is still being overstated by the EIA data.

A lot of talk of shale oil producers and investors ramping up investment and production into the New Year. That is going to be needed as my sources tell me that the average shale oil well, even in the Permian basin, is producing 25% to 40% less oil then wells a year ago. That means that the EIA will have to adjust downward their production estimates again.

Dow Jones reported that OPEC production fell to its lowest in six months, but rival U.S. production was surging faster than expected, meaning oil markets may not rebalance before the end of 2018. OPEC crude fell by about 133,500 barrels a day in November to 32.45 million barrels a day. Yet OPEC might not have to worry as much as they think because of the EIA overestimates.

The dollar reversed course after the Fed raised the Fed Funds rate 25 basis points and that is helping oil comeback. Traders feared the Fed might talk about more than three rate hikes! When the Fed plotted just three, the dollar sold off in relief. This drop should give a boost to metals that had sold off in anticipation of the Fed.

We are looking for a 44 draw in Natural gas in today’s report. This market is due for a bounce, but it needs a polar vortex to overcome surging U.S. production! Or it needs everyone to double down and put up more Christmas lights! Or better yet! Get more super computers and mine for Bitcoin.