Afternoon Market Overview

The EIA has released the March Short Term Energy Outlook (STEO) Report. OPEC will release its report on March 14 with the IEA report due out on March 15. The EIA report was a tad bearish from the production side as they indicated that US crude oil production would be about 120,000 bpd higher than what they forecast in the February report.

Following are the main oil highlights from the report: EIA estimates that U.S. crude oil production averaged 10.3 million barrels per day (b/d) in February, up 230,000 b/d from the January level, when there were some well freeze-offs in the Permian and Bakken. EIA has reported that total U.S. crude oil production averaged 9.3 million b/d in 2017, ending the year with production of 9.9 million b/d in December. EIA projects that U.S. crude oil production will average 10.7 million b/d in 2018, which would mark the highest annual average U.S. crude oil production level, surpassing the previous record of 9.6 million b/d set in 1970. EIA forecasts that 2019 crude oil production will average 11.3 million b/d.

The Brent-WTI price spread narrowed to its lowest level in more than six months, closing at $3.03/b on March 1. Several factors specific to the crude oil market in the U.S. midcontinent could be contributing to a narrowing spread. Crude oil stocks in Cushing, Oklahoma, the delivery point for the U.S. light sweet crude oil futures contract, continued to decrease in February. Stocks declined to less than 29 million barrels the week ending February 23, 2018, the lowest level in more than three years, and they are being drawn down at the largest rolling 13-week rate since EIA began publishing Cushing stock levels in 2004.

Recent trade press reports that the Keystone pipeline, which flows directly into Cushing, is still operating below nameplate capacity. Gasoline inventories, which typically decline between January and February, rose this year in all regions of the United States. Total U.S. gasoline stocks rose 6.3 million barrels between the weeks ending February 2 and February 23. Total U.S. gasoline stocks have declined between January and February on average by 5.8 million barrels over the past five years, according to EIA’s Petroleum Supply Monthly.

EIA expects U.S. liquid fuels consumption to grow 0.47 million b/d (2.4%) in 2018, the highest growth rate since 2013. EIA projects that most of the consumption growth will come from natural gas-sourced products. HGL consumption is expected to account for 0.34 million b/d of total liquid fuels consumption growth. Ethane is expected to account for almost 65% of this HGL consumption growth, as new domestic ethylene crackers begin operating.

EIA estimates that inventories of global petroleum and other liquid fuels declined by 0.6 million b/d in 2017. In this forecast, global inventories grow by about 0.4 million b/d in 2018 and by another 0.3 million b/d in 2019.