US crude oil stocks decreased by 2.7 MMBbl last week. Gasoline stocks posted an increase 2.5 MMBbl while distillate stocks decreased by 1.5 MMBbl. Yesterday afternoon, API had reported a crude oil build of 3.1 MMBbl, while reporting a distillate build of 2.0 MMBbl and gasoline withdrawal of 1.6 MMBbl. Analysts on the contrary, were expecting a withdrawal of 0.4 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a withdrawal of 1.7 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be down 81 MBbl/d from last week per EIA’s estimate. Lower 48 production decreased 87 MBbl/d (due to Hurricane Nate’s effect in the Gulf of Mexico). Alaska production increased 6 MBbl/d. Imports were up by 403 MBbl/d last week to an average of 7.6 MMBbl/d. Refinery inputs averaged 16.2 MMBbl/d (229 MBbl/d more than last week), leading to a utilization rate of 89.2%. The crude oil and total petroleum stocks withdrawal can be interpreted as bullish, however the build in gasoline and IEA’s latest monthly report gave the market some bearish sentiment. Prices are down, with prompt month WTI trading down $0.53/Bbl at $50.78/Bbl.
Prices have been trading in the $49-$52/Bbl range since last week. There is both bullish and bearish forces in the market surrounding expected growth demand as well as global production moving into 2018.
OPEC’s latest report and comments from the group’s secretary general gave mixed signals to the market. On the bullish side, the group raised their demand growth expectation and OPEC’s Secretary General stated that the group may need to take extraordinary measures to balance the market next year. The report also reported oil production rising 90 MBbl/d in September, sending a bearish signal to the market. Libya and Nigeria continue to increase production, contributing to OPEC’s rising production. IEA’s latest report also added some bearish sentiment to the market, reporting global stock builds and rising non-OPEC production.
The next OPEC meeting is scheduled for November 30th in Vienna. The way that the global supply/demand picture shapes up ahead of this meeting is crucial for OPEC to determine to either extend or end the supply cut deal that expires in March 2018. Increasing activity from US producers, as well as the potential for Libya and Nigeria to add more production to the market still remains a threat to any significant price recovery.
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 $46-$53/Bbl in the near term.
Please find the updated Drillinginfo charts on the link below:
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