1. The autumn slower energy demand season is now here and data is no longer obscured by hurricanes. Last week the EIA showed total product supplied was down 1.39Mb/d to 19.7Mb/d (see chart). In the US, gasoline demand fell last week by 281Kb/d to 9.25Mb/d and for the year to date is showing a decline of 1.8% from last year.
2. In our view the recent declines in commercial inventories is related to the boom in US crude exports. Last week exports were a record 1.984Mb/d as the WTI benchmark trades as much as US$6.80 below Brent, providing a very profitable arbitrage opportunity. In total the US exported nearly 14Mb last week which clearly offsets the 6.0Mb that excited the bulls. Normal exports have benn about 500Kb/d.
3. We expect to see record US crude production in the data in the next few weeks, over the 2015 high of 9.61Mb/d. Last week it was up 14Kb/d to 9.56Mb/d. That plus the seasonal storagebuild and the lower seasonal demand picture will be the drivers of lower crude prices. The first test for the bulls will be the breach of the low of US$45.58 seen in late August. Once we go below the low for 2017 (so far at US$42.05), the energy bulls will be getting the shaft. Once prices fall below US$40 in November, then energy stocks will get a pianful shaft. Those energy companies with bad/high debt loads or those with heavier barrels will see the most pronounced decline. It will get nasty out there so stay with high cash reserves. There will be a great time to buy later this year but not yet!