US crude oil stocks decreased by 6.0 MMBbl last week. Gasoline stocks posted an increase 1.6 MMBbl while distillate stocks decreased by 2.6 MMBbl. Yesterday afternoon, API had reported a crude oil withdrawal of 4.08 MMBbl, while reporting a large gasoline build of 4.2 MMBbl and distillate withdrawal of 0.6 MMBbl. Analysts were expecting a more modest crude withdrawal of 0.8 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a sizeable withdrawal of 6.1 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be up 14 MBbl/d from last week per EIA’s estimate. Lower 48 production was reported to have remained unchanged. Alaska production increased 14 MBbl/d. Imports were down by 213 MBbl/d last week to an average of 7.2 MMBbl/d. Refinery inputs averaged 16.0 MMBbl/d (145 MBbl/d less than last week), leading to a utilization rate of 88.1%. The report was bullish given the higher than expected withdrawal in crude oil stocks along with the sizeable decline in total petroleum inventories. Prices are up on the bullish release, with prompt month WTI trading up $0.10/Bbl at $50.52/Bbl.
Prices have been trading in the $50-$51/Bbl range, and settled at a two-week low on Tuesday. Speculators took in profits after WTI reached a seven-month high last week, which triggered the downward movement of WTI over the last week.
Prices faced more pressure as most of last week’s bullish outlook has diminished moving into this week with new information on OPEC production and the Turkish pipeline. OPEC production that showed a decline in August is now reported to be up according to a Reuter’s survey. The survey showed OPEC’s production rising in September mainly due to higher production from Iraq and Libya. Meanwhile, Turkish President Recep Tayyip Erdogan, revoked his threat to shut down the pipeline that flows nearly 0.6 MMBbl/d of crude from Northern Iraq to the Turkish port of Ceyhan.
The market will be closely watching OPEC’s monthly report and looking at how the global supply/demand picture will be shaping up as we get closer to the end of the year. Libya and Nigeria adding more production as well as US producers increasing activity in a higher price environment will remain a large threat to any price rallies and will serve as a cap on how high prices can go.
As previously stated here, continued high compliance with production quotas and realization of the demand growth projected by IEA will need to occur simultaneously for any chance of near-term inventory normalization. Without inventory normalization, there can be no sustained price recovery. Drillinginfo expects the potential for volatile trade between $45-$53/Bbl in the coming weeks, as the market navigates through the speculative length while keeping an eye out for fundamental signs of inventory normalization.
Please find the updated Drillinginfo charts on the link below:
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