|US crude oil stocks decreased by 4.7 MMBbl last week. Gasoline and distillate stocks posted withdrawals of 4.4 MMBbl and 2.1 MMBbl respectively. Yesterday afternoon, API had reported an unexpected crude oil build of 1.6 MMBbl while reporting gasoline and distillate withdrawals of 5.4 MMBbl and 2.9 MMBbl respectively. Analysts on the contrary, had expected a crude withdrawal of 3.0 MMBbl, alongside gasoline and distillate withdrawals of 0.5 MMBbl and 0.7 MMBbl respectively. The most important number to keep an eye on, total petroleum inventories, posted a large decrease of 10.2 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be up 32 MBbl/d from last week per EIA’s estimate. Imports were up by 386 MBbl/d last week to an average of 8.0 MMBbl/d. Refinery inputs averaged 17.1 MMBbl/d (125 MBbl/d less than last week), leading to a utilization rate of 94.0%. The report is bullish due to a larger than anticipated crude withdrawal, as well the sizeable total stocks withdrawal. WTI prices are up $0.65/Bbl to $47.05/Bbl at the time of writing.
Crude prices have been trading in the tight range of $46-47/Bbl. Prices briefly extended gains on Tuesday with Saudi Arabia’s consideration of cutting crude oil exports by up to another 1.0 MMBbl/d to speed up the normalization of inventory levels. The brief gains in prices was also due to the expectation that the United States would see another drawdown in crude stocks. However, prices gave up their gains after the close of Tuesday’s trading when API showed an unexpected build in crude stockpiles.
Bearish sentiment increased as IEA’s monthly report showed OPEC production increased due to higher volumes in Nigeria and Libya, both exempt from cuts. Bearish sentiment increased further with Ecuador announcing it wouldn’t attempt to cut production due to needs for greater revenue. Iran and Iraq’s compliance levels are still dubious given their track record of cheating, which also keeps the bearish sentiment alive. On bullish news, IEA’s monthly report showed demand would surge faster than expected, expanding by 1.5 MMBbl/d this year mainly due to Chinese refinery demand. There is also speculation that Nigeria and Libya may curb output following their invite to attend the OPEC quota monitoring committee meeting on July 24th in Moscow.
Prices will continue trading in a tight range, with rising OPEC and US production keeping a lid on prices, while bullish expectations will keep the floor at mid-$40/BBl levels. As stated here previously, without 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 mid-$40/Bbl range in the short term as the market comes to grips with whether the implied deficit will continue to prompt global inventory normalization. Until global inventories start to decline continuously, longer term price advances will be limited.
Please find the updated Drillinginfo charts on the link below:
Petroleum Stocks Chart