US crude oil stocks posted an increase of 3.6 MMBbl from last week. Gasoline and distillate inventories increased 0.4 MMBbl and 1.2 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 0.9 MMBbl while reporting a gasoline build of 0.7 MMBbl and a distillate draw of 2.5 MMBbl. Analysts were expecting a crude oil build of 2.3 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted an increase of 6.5 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.
US crude oil production remained unchanged last week, per the EIA. Crude oil imports were down 0.9 MMBbl/d last week, to an average of 6.2 MMBbl/d. Refinery inputs averaged 15.8 MMBbl/d (865 MBbl/d less than last week), leading to a utilization rate of 85.9%. Although the report is bearish due to crude oil and total petroleum stocks build, steep OPEC-led supply cuts and US sanctions on Venezuelan crude are supporting prices. However, the global economic growth concerns and lower demand expectations due to uncertainty about the US-China trade dispute will keep the pressure on prices. Prompt-month WTI was trading up $1.22/Bbl, at $54.32/Bbl, at the time of writing.
Prices traded in the $52/Bbl to $54/Bbl range last week. WTI prices fell to their two-week lows on Monday due to increasing concerns over global economic and demand growth with fears about the US-China trade dispute, increasing US production, and a stronger dollar. Tuesday brought some recovery to prices due to bullish news from OPEC’s monthly report and Saudi Arabia’s comments on supply cuts as well as US and Chinese officials starting a new round of talks to possibly resolve the ongoing trade war ahead of the March 1 deadline.
The trade continues to be pulled in both directions with news of trade disputes and OPEC-supply cuts. Monday’s losses were largely due to increasing concerns over the US-China trade talks, as US President Donald Trump said that he did not plan to meet with Chinese President Xi Jinping before the March 1 deadline. Increasing US production and an uptick in rig count as well as the stronger dollar also played a role in pressuring prices. The pressure on prices eased on Tuesday following Saudi Energy Minister Khalid al-Falih’s comments and OPEC’s latest monthly report showing that the group cut oil production nearly 0.8 MMBbl/d in January. Khalid al-Falih said that Saudi Arabia would lower production to about 9.8 MMBbl/d in March, which is 0.5 MMBbl/d lower than its pledged level.
Although bullish sentiment is increasing with the steep OPEC-led supply cuts, Khalid al-Falih’s comments on further cuts beyond pledged levels, the US sanctions on Venezuelan crude, the uncertainty about trade disputes, and the possibility of weakening global economic and demand growth are limiting the gains. Prices can also see further pressure, as Libya’s largest oilfield, El Sharara, could soon resume operations and bring 0.3 MMBbl/d of production back online, as Libyan military forces secured and took control of the field.
Prices in the near term will be volatile as the market assesses the OPEC supply cuts and waits for a resolution from the new round of trade talks between the US and China. If a deal can be reached between the countries to eliminate the currently proposed tariffs on Chinese goods or to prevent any additional tariffs, global economic and demand growth could tick upward, which could support higher prices. However, if a deal cannot be reached and the Chinese economy and those of other emerging economies continues to suffer, sentiment could shift to bearish again regardless of the OPEC and non-OPEC supply cuts pressuring prices further.
Prices in WTI settled the week down ($2.54/Bbl) after trading a little higher than the previous week ($55.75/Bbl) but staying above the previous week’s low. The market internals showed volume gaining on the previous week, but open interest continues to decline as participants are seeking direction. Should prices find support from the ongoing tariff discussions, they may rally to the mid-November high of $57.96/Bbl. Should the tariff issues between the world’s two largest economies are not resolved, fears of global demand declines and a supply long market will re-establish taking prices initially down to $50.00/Bbl (where the market consolidated in early January) and perhaps further.