As Q2 Approaches, Oil Inventories Take a Turn for the Better.

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As we near the conclusion of the first quarter, there has been a positive change in worldwide oil supplies. The latest oil storage report by EIA showed a notable improvement with a decrease of 10.4 million barrels in overall liquids. This is the most encouraging review of the year so far.

What's essential for us is that there were a couple of positive factors present in this report that weren't easily visible.

Initially, although the attraction for crude oil was enormous at 10.4 million barrels, the storage for business purposes exhibited an increase of about 1.1 million barrels. This situation took place due to the second highest adapted adjustment reading in our set of data. The highest one just happened a month ago, which was in the week ending on February 10th.

When there are significant increases in modified adjustments, a corresponding decrease often occurs. Since 2021, the typical standardized correction has been approximately 750,000 barrels per day, which suggests that this number will decrease in the coming weeks or months.

If you're wondering about the meaning of elevated modified adjustment, note that it's a short-term occurrence. If the data goes back to normal, we can expect to see decreases in crude draws as long as exports stay high.

Additionally, the demand for oil in the United States appears to be improving beyond what is initially apparent.

Check out this graph displaying the overall implied desire for oil. At a quick glance, you can notice how in 2023, the amount of demand is expected to be lower than in 2019. However, it's important to note that the underwhelming performance in consumption is largely attributed to heating needs.

The current winter is one of the hottest ever recorded. Consequently, this makes the data appear lower than it actually is. To gauge the general state of oil demand, we concentrate on monitoring gasoline, jet fuel, and distillate. In particular, the demand for gasoline and jet fuel is projected to exceed 2022 levels.

Because of the drop in oil prices starting from June last year, it has taken quite a while for the demand to go up again. We mentioned this before in the middle of June last year, but now that the situation is improving, we might expect to see more products being used and a better balance in the future.

Apart from these two undisclosed bullish factors, it's significant to observe that the storage of products is now adhering to seasonal patterns.

Using information from mobility statistics, it seems that the need for gasoline will exceed previous expectations in the future. This is indicated by the rising 3-2-1 crack spread, which leads me to believe that storage depletion will persist.

The amount of gasoline stored at this time of year is presently lower than in previous years. In the future, gasoline will have a significant impact on overall product storage, making it crucial for oil enthusiasts to monitor the decrease in this figure.

What are the things we need to witness in the future?

As oil supplies have started to improve, we're seeing a slight decrease in overall balances for the second quarter. Based on how the market is responding to changes in crude oil grades, we expect this decrease to be relatively small at around 0.5 million barrels per day.

Oil bulls need to closely monitor not just the overall decrease in liquid materials, but also how quickly there is a change in suggested demand figures. Although demand for liquid materials remains unexciting, demand for gasoline is expected to noticeably increase, leading to a boost in overall demand. This, in turn, should result in increased 3-2-1 crack spreads and reduced gasoline inventory.

Right now, those who are optimistic about the oil market can relax a bit. While the price has gone down, the data underneath isn't as terrible as it may seem. However, it's important to keep watch and pay attention. The individual reports for the second quarter must still reflect a decline in inventory, and just because things are looking up at the moment, it doesn't indicate a long-term trend.

Note from the editor: This post discusses the details of microcap stocks which may carry certain risks. We advise you to be aware of these risks before making any investment decisions in relation to them.

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