U.S. shale, spooked by negative prices last Monday, shows some signs of averting a storage max-out – but it is far too soon to declare victory. The latest EIA data suggests inventory builds are slowing. On the demand side, refinery inputs rose slightly, crude imports and exports ticked up, and end-product demand strengthened as motor gasoline stocks declined. On the supply side, we see strong evidence that well shut-ins are accelerating. It is too soon to say if these trends will return crude markets to balance: we believe strong caution is warranted for two reasons.

First, another wave of COVID-19 infections, either domestically or in key international markets, could sharply reduce crude demand and threaten the nascent return to normalization. Second, even as the rate of national storage level build-outs slow, crude inventory levels are rising at Cushing and PADD 3 (the Gulf Coast). While top-line figures indicate a declining rate of injections to inventory, available storage is still filling up, especially for Permian producers. Making matters worse, Saudi crude tankers are delivering over 50 million barrels to the US over 48 days, further pressuring inventories. The probability of a disastrous storage max-out may be declining as some producers shut-in, but we aren’t out of the woods. A storage max-out and lower WTI prices remain real possibilities. Finally, as we go to press, we are reading of a proposal by the Texas Railroad Commission (RRC) to forcibly cut each individual producer’s production by 20% from their individual, peak monthly production