US crude oil stocks increased by 3.3 MMBbl last week, alongside gasoline and distillate builds of 3.3 MMBbl and 4.4 MMBbl respectively. Yesterday afternoon, API had reported a crude oil withdrawal of 4.6 MMBbl alongside a gasoline and distillate build of 4.1 MMBbl and 1.8 MMBbl respectively. Analysts had expected a lower crude withdrawal of 3.5 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a large increase of 15.5 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be down 24 MBbl/d from last week per EIA’s estimate. Imports were up 356 MBbl/d last week to an average of 8.3 MMBbl/d. Refinery inputs averaged 17.2 MMBbl/d (283 MBbl/d less than last week), leading to a utilization rate of 94.1%. The petroleum stocks report is extremely bearish, due to the unexpected build in crude oil stocks and sizeable build in total petroleum inventories. WTI prices are down $2.15/Bbl to $46.04/Bbl at the time of writing.
WTI prices have been trading in the $47-49/Bbl range. Prices have been under pressure due to concerns over OPEC-led production cuts, tensions within the export group over Qatar and increasing US production. The market has been doubtful on the success of OPEC and non-OPEC members extending production cuts and reducing global inventory levels. Strong US production, as well as Nigeria and Libya increasing output, have been increasing bearish sentiment and causing skepticism around effectiveness of the cuts. Bearish sentiment increased further as the EIA said Tuesday that it expects 2018 daily output to hit 10 MMBbl/d and both Nigeria and Libya increased output faster than expected.
Saudi Arabia and United Arab Emirates cut diplomatic and transport ties with Qatar, who is a small producer. In the short term this may offer some support for prices, however, it could also cause some unrest and weaken the production cut agreement. The market will be focused on increasing US production and high global inventory levels in the short term which will provide a bearish environment. Longer term success of correction in global inventory levels will be dependent on OPEC confirming high compliance on production quotas in conjunction with demand growth projected by IEA. These two elements must occur simultaneously, otherwise there is little chance for global market to normalize inventories and lead to sustained higher prices. In the meantime, continuously rising US production and faster than anticipated growth from Libya and Nigeria will be working against rebalancing of inventories. Drillinginfo expects WTI prices to trade in the $47-$50/Bbl range in the short term. Longer term prices will be shaped by success of OPEC’s cut extension and its effects on the stubbornly high global inventories, especially during the high demand season.
Please find the updated Drillinginfo charts on the link below: