Enverus Blog

Insights across the energy value chain

US crude oil stocks decreased by 1.1 MMBbl last week. Gasoline and distillate inventories increased by 3.1 MMBbl and 0.6 MMBbl, respectively. Yesterday afternoon, API reported a crude oil build of 4.8 MMBbl while reporting a gasoline build of 4.1 MMBbl and distillate draw of 1.3 MMBbl. Analysts, on the contrary, were expecting a crude oil withdrawal of 1.6 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a withdrawal of 2.9 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

US crude oil production was estimated to be up 128 MBbl/d from last week, per EIA’s estimate. Crude oil imports increased by 91 MBbl/d last week to an average of 8.0 MMBbl/d. Refinery inputs averaged 16.5 MMBbl/d (392 MBbl/d less than last week), leading to a utilization rate of 90.9%. The report is bullish, as EIA reported the tenth consecutive withdrawal in crude oil stocks. WTI prices topped $65/Bbl for the first time in more than three years following the bullish report. Prompt-month WTI was trading up $0.82/Bbl at $65.29/Bbl at the time of writing.  

EIA Reports 10th Consecutive Inventory Draw, Oil Prices Trading at 3-Year Highs

WTI prices traded in the $63-$65/Bbl range last week. Statements from the OPEC meeting in Oman and growing concerns about declining Venezuelan production supported prices throughout the week. The WTI and Brent benchmarks both had significant gains on Tuesday, following the International Monetary Fund’s (IMF) optimistic statements about the global economy for 2018 and 2019. Futures pared some gains after the API report showed a surprise build in crude oil inventories.

The IMF on Monday revised upward its global economic forecast by 0.2% to 3.9% for 2018 and 2019. The market interpreted the more optimistic outlook by the IMF as a possible increase in demand for petroleum products, which pushed prices higher. Saudi oil minister Khalid al-Falih’s comments over the weekend also supported prices and increased bullish sentiment. al-Falih reassured the media that the supply-cut coordination is here to stay. “We should not limit our efforts to 2018. We need to be talking about a longer framework for our cooperation,” al-Falih said. In addition to bullish news from the IMF and the OPEC meeting, Venezuela’s production levels also support the bullish sentiment. Production from Venezuela fell to 2 MMBbl/d in 2017 a decline of over 30% year-on-year and is expected to decline further in 2018.
WTI prices traded in the $63-$65/Bbl range last week. Statements from the OPEC meeting in Oman and growing concerns about declining Venezuelan production supported prices throughout the week. The WTI and Brent benchmarks both had significant gains on Tuesday, following the International Monetary Fund’s (IMF) optimistic statements about the global economy for 2018 and 2019. Futures pared some gains after the API report showed a surprise build in crude oil inventories.

Although al-Falih’s comments may have eased the emerging doubts of a lower compliance rate and an early exit from production cuts, the timing of his comments raised some questions. The market was starting to doubt the longevity of the cuts, which was starting to halt the upward price movement. As bullish sentiment in the market continues to grow, it increases the possibility US production will put further pressure on prices, as US production is approaching record levels. If the recent price rally continues, US producers will be motivated to take advantage of the price run by expanding hedging programs and growing production even further and faster. In that scenario, the US will be edging closer to surpassing Saudi Arabia and Russia, which would result in the US having the largest crude oil market share in the world.

The market has now held over $60/Bbl for almost a month, establishing $60/Bbl as a resistance level. Drillinginfo expects a more consolidative trading pattern in the coming weeks as speculative traders start to re-evaluate the fundamental supply-and-demand balance. While additional news regarding OPEC quotas, inventory normalization, or temporary supply disruptions due to geopolitical issues may create short-term price gains and volatility, the promise of additional growth from US producers is likely to limit longer-term extensions. It is critical that high quota compliance is continued through 2018, along with the realization of the demand growth projected by the IEA, occur concurrently in order for the market to have any chance of normalizing inventories back to what levels were prior to the price crash. Without inventory normalization, the price recovery cannot be sustained. Drillinginfo expects a significant correction of the price rally and trade to settle in a range around $55/Bbl for an extended period of time.

Please find the updated Drillinginfo charts on the link below:

Petroleum Stocks Chart

The following two tabs change content below.
Enverus
Enverus enables the world to make better oil and gas decisions.