Landslide

They took the oil and took it down, a stunning build and it turn straight down. When you count the barrels and the oil drilled, a landslide brought it down.

A massive crude oil build rocked the oil market in what could be a major downside breakdown that is raising the stakes for OPEC and U.S. shale producers. Will it be cut back or face prices falling even further. Call it a landslide if you will, as record long positions in oil ran for their lives and analysts like me are scratching their head to try to figure out how they did not see this historic and record breaking increase in weekly crude oil supply. 

No one expected the massive 11.6-million-barrel increase in crude supply that we saw in the American Petroleum Institute (API) report and crashed when the Energy Information Administration reported a smaller but still gigantic 8.2-million-barrel increase in weekly supply. In some ways in does not even make sense but strong imports and rising shale oil production finally raised production to year ago levels.

Now with oil below $50.00, the shale resurgence once again is at risk. If oil prices look like they cannot maintain $50.00 a barrel then we should see rig counts to start to fall and that means that production might peak unless OPEC and non-OPEC shock and awe this market with another production cut. KLR Group put out a report that the U.S. break-even point for U.S. shale on average is $50 a barrel. For natural gas that number is $335! Numbers that we are now below in both markets. We already are seeing reduced production for natural gas and unless oil rebounds soon, then oil output once again will contract like we did one year ago, when the oil price collapsed.

Part of the big oil build was due to a big jump in crude oil imports that rose by 561,000 barrels a day suggesting that we are still seeing the offloading of pre-OPEC cut oil tankers that were filled before cuts went into effect. We also know that the Department of Energy sold 16 million barrels of oil from the Strategic Petroleum Reserve last month and yet we only saw SPR supply drop modestly by 300,000 barrels. It still is not clear whether some of those crude sales are showing up in commercial inventory but they should not be unless we see a corresponding drop in SPR supply. That means we might have to add another 15 million barrels to the commercial inventory levels in the coming weeks. Yet the build still seems to not make sense.