This Week in Petroleum… EIA

This Week in Petroleum from the EIA has a lot of good stuff in it (http://www.eia.gov/petroleum/weekly/):

Here is a chart showing how market structure in Brent and WTI has moved to one of less contango..

From the EIA:

“The stronger crude oil demand outlook is likely the main reason for higher crude prices across the entire futures curve, whereas the near-term supply concerns are putting additional upward pressure on prices for near-term delivery.”

“The relative tightness in Brent compared to WTI likely reflects the anticipation of a heavier-than-normal summer maintenance season for North Sea production facilities.”

“Recent supply disruptions are likely to be affecting oil markets. An oil workers’ strike in Kuwait immediately followed the Doha meeting, potentially disrupting Kuwait’s 2.6 million barrels per day (b/d) of crude production. Although the strike has been resolved with little to no remaining supply disruption, other disruptions are still influencing oil markets. In March, OPEC’s unplanned crude oil supply disruptions averaged 2.3 million b/d, with production outages increasing in places like Nigeria, Libya, and Iraq. Non-OPEC supply was also lower because of outages in Brazil and Ghana.

These disruptions come at a time when non-OPEC production is decreasing and OPEC surplus crude oil production capacity has narrowed. Surplus capacity is an indicator of tight or loose market conditions and surplus capacity below 2.5 million b/d typically indicates relative tightness. However, the high current and forecast levels of global crude oil inventories make the projected low surplus capacity level less significant. EIA currently expects OPEC surplus capacity to average 1.8 million b/d in 2016.”

Here are US crude oil stocks with yesterday’s data included:

And here are stocks relative to demand (days supply) in OECD nations:

To summarize:

“The recent narrowing contango in crude oil futures prices is the result of current supply disruptions and the risk of future disruptions, as well as rising prices across global markets with the expectation of a narrower future balance between supply and demand. However, the large buildout of global inventories should buffer any differences in supply and demand, potentially constraining near-term crude oil price increases.”

My view:  Prices moved a bit higher than I expected, but I think we are at the top end of a trading range… Front month vol, which is around 41%, could trade closer to its long term average of 33 as we move through the second quarter..