US crude oil stocks decreased by 8.9 MMBbl last week. Gasoline stocks remained unchanged while distillate inventories increased by 0.7 MMBbl. Yesterday afternoon, API had reported a large crude oil draw of 9.2 MMBbl alongside a distillate withdrawal of 2.1 MMBbl and gasoline build of 0.3 MMBbl. Analysts, had expected a much lower crude withdrawal of 3.6 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a notable decrease of 7.3 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be up 79 MBbl/d from last week per EIA’s estimate. Lower 48 production was reported to be up 25 MBbl/d, while Alaska production increased by 54 MBbl/d. Imports were up by 364 MBbl/d last week to an average of 8.1 MMBbl/d. Refinery inputs averaged 17.6 MMBbl/d (9 MBbl/d less than last week), leading to a utilization rate of 96.1%. Despite large withdrawals in crude and total stocks, prices are down due to unchanged gasoline and a build in distillate stocks. WTI prices are down $0.24/Bbl to $47.31/Bbl at the time of writing.
Crude prices have been on a downward spiral, falling from the $49-$50/Bbl range to a three-week low of $47.02 on Tuesday. Prices suffered a major sell-off starting Monday due the dollar gaining strength (three-week high), concerns over ineffectiveness of OPEC cuts, and weak domestic demand data from China.
China’s crude refineries operated in July at their lowest daily rates since September. At peak demand season, having the lowest refinery runs in 10 months is now raising concerns about Chinese crude demand growth and normalization of global inventory levels. Bearish sentiment increased further, as the Royal Dutch Shell Nigerian unit lifted the force majeure on Bonny Light crude oil exports that had been in place since mid-July. Although Nigeria had agreed to limit their output at 1.8 MMBbl/d they are still approximately 200 MBbl/d away from reaching that limit, which is a significant amount of production that would impact the global supply/demand levels significantly if it comes online. EIA’s expectation that shale output will increase by 117 MBbl/d in September also added bearish sentiment in the market. The only bullish news came from Libya, as Libya’s national oil corporation said that the Zueitina oil terminal had ceased loading cargos due to protests from port workers. Although a supply outage from Libya’s largest field could decrease OPEC production significantly, this disruption would only be temporary and not have any long-term consequences, as Libya has been ramping up production and is currently working towards increasing output further.
As stated here previously, without continued high compliance with production quotas and concurrent realization of the demand growth projected by IEA, there is little chance for the inventory normalization. Without inventory normalization, there can be no sustained price recovery. Trade in the coming weeks may confirm the top of the new range around $51/Bbl and has redefined the low side at $44/Bbl. DrillingInfo expects prices to trade in the $45-47/Bbl range in the near-term due to continued lack of data regarding the pace and trajectory of inventory normalization as well as increasing bearish sentiment in the market.
Please find the updated Drillinginfo charts on the link below:
Petroleum Stock Report
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