US crude oil stocks increased by 5.9 MMBbl last week. Gasoline and distillate stocks decreased by 8.4 MMBbl and 3.2 MMBbl respectively. Yesterday afternoon, API had reported a crude oil build of 6.2 MMBbl while reporting gasoline and distillate draws of 7.9 MMBbl and 1.8 MMBbl, respectively. Analysts were expecting a larger crude build of 10.1 MMBbl. The most important number to keep an eye on, total petroleum inventories increased by 1.7 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be up 572 MBbl/d from last week per EIA’s estimate. Lower 48 production was reported to be up 582 MBbl/d (recovery from Harvey’s impact), while Alaska production decreased by 10 MBbl/d. Imports were down by 603 MBbl/d last week to an average of 6.5 MMBbl/d. Refinery inputs averaged 14.1 MMBbl/d (394 MBbl/d less than last week), leading to a utilization rate of 77.7%. A bullish EIA report (crude oil inventory build was smaller than anticipated and the large gasoline and distillate withdrawals), as well as IEA’s bullish August report pushed prices up this morning. WTI prices are up $0.45/Bbl to $48.67/Bbl, at the time of writing.
Prices have been gaining strength due to refineries along the Gulf Coast restarting operations following Hurricane Harvey. Inventory numbers will continue to be watched closely by the market, however current inventory levels and weekly fluctuations in data will not be indicative of long term supply/demand balance due to the effects of Harvey.
As the market is trying to get a handle on how prices will be affected with the impacts of Harvey, news from OPEC and IEA’s monthly reports have increased the bullish sentiment. First news supporting prices came on Sunday as Saudi Arabia said its energy minister and his Venezuelan counterpart had discussed possibly extending OPEC’s oil output cut agreement beyond the currently set March 2018 expiration date. Bullish sentiment increased further after OPEC, in its monthly report, said its output fell in August. OPEC’s August production levels were 79 MBbl/d less than levels seen in July. Saudi Arabia was the major contributor for the lower production from the group. Iraq and UAE also cut production in August, however they are still producing above their agreed quotas. Prices continued their strength after IEA in their August report said global supply dropped by 720 MBbl/d, although most of the decline was due to pipeline blockades in Libya, and lower US production due to Harvey. Report also mentioned OPEC supply falling by 210 MBbl/d in the same month. In the same report, IEA said that demand is expected to be 1.6 MMBbl/d higher compared to their July estimate of 1.5 MMBbl/d.
Prices will be in a volatile environment as the results of Harvey and will become clearer in the coming weeks as refineries slowly reopen and crude production recovers from the Gulf region.
Additional price volatility is expected between now and September 22nd, which is when the Joint OPEC-Non-OPEC Ministerial Monitoring Committee (panel supervising the compliance with cuts) will take place in Vienna. Early rumors suggest Saudi Arabia may push to extend cuts through 2Q2018 (current agreement to continue through 1Q2018). The committee has also expressed their intention to reassess Nigeria and Libya’s (two countries exempt from cuts) production plans, as both countries have been increasing their output.
As previously stated, once the effects of tropical storms diminish, refineries are fully operational and production from US and Libya recovers back to normal levels, continued high compliance with production quotas and realization of the demand growth projected by IEA will still need to occur for the inventory normalization this year. Without inventory normalization, there can be no sustained price recovery. DrillingInfo expects the primary range around $45-$46/Bbl to hold the trade as the market’s focus shifts back to inventory normalization and global supply levels from temporary disturbances.
Please find the updated Drillinginfo charts on the link below:
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