Canadian Oil Sands Production Slowdown due to Wildfire Still Bullish for Crude

US Supply/Demand Balance:  Calculated from (US Production + Net imports)/Petroleum Supplied psw01 2016-5-18

So many like to believe crude oil prices are completely driven by a Wall Street conspiracy to push prices up.  Of course that completely ignores a 2 year long crash.  Even now many point to a conspiracy based on high inventories.  But really matters is what direction that inventory is trending and where it is likely to trend in the near future.  Of course the here and now will outweigh the future especially given the turmoil in production due to the low prices, wars and the Canadian wild fires that have completely shutdown oil sands production twice in May.

The above chart clearly shows that we are currently in a deficit condition.  This deficit condition is likely to continue for weeks or months with high summer demand for gasoline and other fuels and low supply from Canada.  Even imports could be affected for weeks since the weak Canadian imports in May led to a surge in unloading tankers.  This means that ready supply of crude is no longer sitting offshore.  It may be back in 8-12 weeks as those tankers get reloaded.

This Deficit/Supply indicator above is confirmed by US total inventories of crude + refined products which has flat lined and may have started a decline.  See the chart below.

US Crude + Refined Inventory YoY Comparison  (psw01 2016-1-13)

My earlier blog post prior to the Fort McMurray fire built a bearish case based on strong Canadian imports.  That post included a graph showing how last summers flattening US inventory was completely created by a Canadian slowdown.  Now we have Canadian Summer Oil Slowdown 2.0.  We must wait and see when oil sands comes back before getting excited about shorting oil.
http://griztrading.blogspot.com/2016/04/canadian-imports-up-us-crude.html
And we still have declining US production and falling rig counts projected until we hit WTI $60.
http://griztrading.blogspot.com/2016/03/wti-above-60-will-drive-rig-increase.html

The moral of the story is now is not yet the time to short oil.  The situation with Canadian supply must be sorted out before we know exactly when we will fall into sustained surplus again.  Most were talking a return to balance in Q3 or Q4 before the Fort McMurray wild fire.  Now with a major unexpected slowdown in oil sands production, much support for crude is present.