US crude oil stocks posted a decrease of 1.4 MMBbl from last week. Gasoline and distillate inventories decreased 1.2 MMBbl and 0.4 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 3.1 MMBbl alongside a gasoline draw of 3.6 MMBbl and a distillate build of 2.3 MMBbl. Analysts, to the contrary were expecting a crude oil build of 1.7 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted an increase of 2.5 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.
US crude oil production decreased 100 MBbl/d last week, per the EIA. Crude oil imports were down 0.60 MMBbl/d last week, to an average of 6.0 MMBbl/d. Refinery inputs averaged 16.1 MMBbl/d (22 MBbl/d less than last week), leading to a utilization rate of 87.7%. The crude oil inventory draw and China’s first quarter GDP showing a growth gave support to prices. Also supporting prices is the unrest in Libya potentially threatening the country’s supply levels. Russia’s statements on abandoning supply cuts and potentially increasing output for second half of the year is pressuring prices. Prompt-month WTI was trading up $0.11/Bbl, at $64.16/Bbl, at the time of writing.
Prices retracted back from their five-month highs, but still traded in the $63/Bbl-$64/Bbl range last week as tightening supply market and the bearish news on supply cuts for the second half of the year pulled prices in both directions. The move up to near the $65/Bbl mark last week was mainly due to news about Libya and the possible impact of fighting on the country’s crude production levels, bringing supply further down in an already tightening market due to declines in Venezuela and Iran.
The price increase due to news from Libya last week were offset by the fears of a slowdown in global economic growth and Russia’s remarks on supply cuts. The US government announcing tariffs on European goods and the IMF lowering its economic growth forecast both increased the fears about global economic outlook while Russian Energy Minister Alexander Novak’s remarks on the extension of supply cuts into second half of the year being unnecessary put uncertainty what OPEC+ may decide in their upcoming meeting in June.
Bearish sentiment and pressure on prices increased at the start of the week due to concerns about OPEC-led supply cuts potentially not being renewed for the second half of the year. The concerns began after Alexander Novak’s comments last week and reached a new level on Monday after Russian Finance Minister Anton Silunav was quoted by Russian TASS agency as saying that OPEC and Russia could decide to abandon the deal and boost production to fight for market share with the United States. Although tightening supply levels, due to declining Venezuelan and Iranian production, as well as the renewed fighting in Libya support the bullish sentiment, the recent news from Russia certainly put some question marks on supply/demand levels for the second half of the year. Increasing US production and gloomy global economic and demand growth will continue to pressure prices, and this pressure can intensify given any other bearish news on supply cuts from Russia and OPEC.
Last week, WTI prices gave their first indication that the price run may follow a more traditional bullish extension. While trading higher early in the week, prices respected the bearish inventory numbers from the EIA and the headline news and promptly started to retrace some of the week’s gains. The $0.50 decline in WTI during the last 45 minutes of trade on Friday is an indication that some of the bullish elements are taking profits on short-term gains. This profit activity is part of a bull market behavior pattern. Participants need to collect profits before adding to additional commitments, and this usually leads the market to periods of consolidation that have been discussed before. The key this week is how far the declines will go before bullish participants add to existing positions. Further extensions taking prices between $65/Bbl and $68/Bbl (an area of consolidation from last fall during the price collapse) will require more bullish headlines and will likely run into selling. The market will closely watch any news surrounding Iranian sanctions, Libyan supply levels, OPEC-led supply cut news, and US-China trade talks. Any slight shift in sentiment due to fundamentals or bearish news could cause a consolidation phase, with a potential retracement back to the $60/Bbl range.