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Bearish Sentiment Continues

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US crude oil stocks increased by 0.1 MMBbl last week. Gasoline and distillate stocks posted withdrawals of 0.9 MMBbl and 0.2 MMBbl respectively. Yesterday afternoon, API had reported a crude oil build of 0.851 MMBbl, alongside gasoline and distillate builds of 1.35 MMBbl and 0.678 MMBbl respectively. Analysts had expected a crude withdrawal of 2.5 MMBbl. The most important number to keep an eye on, total petroleum inventories, increased slightly by 0.8 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.

US production was estimated to be down 100 MBbl/d from last week per EIA’s estimate. Imports were up by 140 MBbl/d last week to an average of 8.1 MMBbl/d. Refinery inputs averaged 16.9 MMBbl/d (262 MBbl/d less than last week), leading to a utilization rate of 92.5%. The report has bullish and bearish signals. The build in crude oil, which ran contrary to analyst expectations, and the build in total petroleum inventories were clearly bearish. However, the withdrawals in primary refined products and the decline in EIA’s production estimates could be interpreted as bullish. WTI prices are up $0.28/Bbl to $44.52/Bbl at the time of writing.

WTI prices have continued to trade in the $42-45/Bbl range. The IEA’s monthly report showed the implied deficit for 2Q17 to be 670 MBbl/d (half of the implied deficit from the prior month’s report). Along with that, the commentary that “patience is required” for inventories to normalize have fanned the flames for recent bearish sentiment. The rising overall OPEC production due to growth from Libya and Nigeria (both exempt from quotas) has also exacerbated the concerns on the supply side. The growing US rig count and production estimates are also driving prices lower. Although WTI prices have been lower recently, most US producers have hedged production at higher prices earlier this year, which means US production will continue to grow this year. As stated here previously, without continued high compliance with production quotas and the realization of the demand growth projected by IEA, there is little chance for the global market to normalize inventories and provide an environment for higher prices. Drillinginfo expects WTI prices to trade in the mid-$40/Bbl range in the short term as the market comes to grips with whether the implied deficit will prompt global inventory normalization. Until global inventories start to decline, longer term price advances will be limited.

Please find the updated Drillinginfo charts on the link below:
Petroleum Stocks Chart

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Sarp is Senior Director of Power & Renewables Analytics at Enverus. He has research and modeling experience in the upstream, downstream and power markets and has presented his work at various academic conferences around the world, including those organized by the SPE and the IAEE. He has also been published in the SPE Economics & Management Journal for his work on the long-term economic viability of production from unconventional liquids-rich reservoirs. Sarp’s focus on data-driven modeling and his ability to incorporate the effects of technological and market advances into analyses provides clients a thorough picture of the present and the future in their area of interest within the oil and gas industry. Sarp holds a Master of Science in Mineral and Energy Economics from the Colorado School of Mines, a Master of Science in Petroleum Economics and Management from the Institut Francais du Petrole (IFP School), and a Bachelor of Arts in Economics from the University of Chicago.