US crude oil stocks decreased by 2.5 MMBbl last week, alongside a gasoline withdrawal of 0.6 MMBbl and distillate build of 1.1 MMBbl. Yesterday afternoon, API had reported a crude oil withdrawal of 2.7 MMBbl, while reporting a gasoline and distillate build of 0.4 MMBbl and 1.8 MMBbl respectively. Analysts had expected a crude withdrawal of 2.0 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a decrease of 1.9 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be up 20 MBbl/d from last week per EIA’s estimate. Imports were down 149 MBbl/d last week to an average of 7.9 MMBbl/d. Refinery inputs averaged 17.2 MMBbl/d (104 MBbl/d less than last week), leading to a utilization rate of 94.0%. The petroleum stocks report is bullish, as crude oil and total petroleum inventories reported withdrawals. WTI prices are up $0.29/Bbl to $43.80/Bbl at the time of writing.
WTI prices have been trading in the $42-44/Bbl range. Prices dipped below $43/Bbl then briefly pared losses and settled at $43.23/Bbl, the lowest since September 2016. The dip in prices was triggered by rising Libyan and Nigerian production. Libya’s oil production rose more than 50 MBbl/d to 885 MBbl/d. Meanwhile, a Reuters report stated that exports from Nigeria’s Bonny Light crude are set to rise by 62 MBbl/d in August. IEA’s monthly report showing the implied deficit for 2Q17 to be 670 MBbl/d (half of the implied deficit from last month’s report) increased the bearish sentiment. In the midst of the bearish news, Saudi’s King Salman announced to relieve the Interior Minister Muhammed bin Nayef of his position as crown prince, putting his son Mohammed bin Salman in charge. The market will be watching news from Saudi Arabia closely to see if the newly appointed heir to the Saudi throne will make any changes to country’s oil strategy.
The overall sentiment in the market remains bearish, as US production shows no signs of slowing down while Libyan and Nigerian production has the potential to increase even further since these countries are exempt from the production reduction agreement. US rig count has increased 22 weeks in a row, the longest streak since 1987. Although WTI prices have been on a downward spiral, most US producers have hedged production with higher prices earlier this year, which means US production will most likely continue increasing and keep a lid on prices. As stated here previously, without the 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 $45-$47/Bbl range in the short term as the current bear market set up the potential for a short covering rally. Until global inventories start to decline, longer term price advances will be limited.
Please find the updated Drillinginfo charts on the link below:
Petroleum Stocks Chart
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