US crude oil stocks decreased by 6.3 MMBbl last week. Gasoline and distillate stocks posted withdrawals of 3.7 MMBbl and 1.9 MMBbl respectively. Yesterday afternoon, API had reported a crude oil and gasoline withdrawal of 5.8 MMBbl and 5.7 MMBbl respectively, alongside a distillate build of 0.38 MMBbl. Analysts had expected a more modest crude withdrawal of 2.8 MMBbl. The most important number to keep an eye on, total petroleum inventories, decreased significantly by 13.4 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be up 88 MBbl/d from last week per EIA’s estimate. Imports were down by 274 MBbl/d last week to an average of 7.7 MMBbl/d. Refinery inputs averaged 17.1 MMBbl/d (251 MBbl/d more than last week), leading to a utilization rate of 93.6%. The report is bullish due to a larger than anticipated crude withdrawal and the sizeable total stocks withdrawal. Although, the large increase in US production can be interpreted as bearish, it comes on the heels of a larger decline reported last week. WTI prices are up $1.11/Bbl to $46.24/Bbl at the time of writing.
WTI prices have continued to trade in the $45-47/Bbl range. Oil prices have been under tremendous stress and have registered their largest first-half decline in almost two decades even though OPEC and other producers led by Russia agreed to cut production to bring down the inventory levels. The EIA release did inject some bullish sentiment back into the market. Prices made a comeback on Thursday from their worst loss in a month. Although the EIA report does help, the general sentiment in the market remains bearish. A Reuters report on Wednesday showed OPEC’s exports rose in June. OPEC exported 25.92 MMBbl/d in June, up 450 MBbl/d from May and 1.9 MMBbl/d than a year earlier. In further bearish news, Russia on Wednesday ruled out any further production cuts. The rising overall OPEC production due to growth from Libya and Nigeria (both exempt from quotas) along with rising US production will continue to keep a lid on prices. 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 continuously, longer term price advances will be limited.
Please find the updated Drillinginfo charts on the link below:
Petroleum Stocks Chart