The Crude Stocks Conundrum

Markets hang on crude stocks statistics, yet they seem to imply that oil is being stored that wasn’t produced in the first place. In the US, where inventories remain the most swollen, sales from the SPR are masking progress on making expected drawdowns and adding to the illusion of a production miracle. Production in the Permian has to slow down now as it bumps up against takeaway capacity. Markets are assuming a return to peak production in Nigeria and Libya – we’re almost there, and the downside risk is greater than the upside opportunity. In Saudi, the elevation of the aggressive young bin Salman is a wild-card. We still think oil can go to $65. We have greater conviction that, in the intermediate term, it can’t go much lower than where it is now.