US crude oil stocks decreased by 6.5 MMBbl last week. Gasoline stocks posted a build of 3.4, while distillate inventories decreased by 1.7 MMBbl respectively. Yesterday afternoon, API had reported a large crude oil draw of 7.8 MMBbl while reporting gasoline and distillate builds of 1.5 MMBbl and 0.1 MMBbl, respectively. Analysts, had expected a more modest crude withdrawal of 2.3 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a decrease of 4.6 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be down 7 MBbl/d from last week per EIA’s estimate. Lower 48 production was reported to be up 15 MBbl/d, while Alaska posted a decline of 22 MBbl/d. Imports were down by 491 MBbl/d last week to an average of 7.8 MMBbl/d. Refinery inputs averaged 17.6 MMBbl/d (166 MBbl/d more than last week), leading to a utilization rate of 96.3%. The report is bullish due to the crude withdrawal, as well as withdrawal in total stocks. WTI prices are up $0.14/Bbl to $49.31/Bbl at the time of writing.
Crude prices have been stuck trading in the tight $49-50/Bbl range due to the cautious mood set by anticipation on the news from the OPEC and non-OPEC meeting in Abu Dhabi. Prices also lost some heat due to brief bullish sentiment from ‘Vendemonium” fading away as the Trump administration has temporarily pushed off sanctions.
Despite OPEC and non-OPEC producer’s agreement on cutting output and showing high compliance levels, an output recovery in Libya and Nigeria (two countries exempt from the cuts) have been a road block for OPEC’s efforts to bump up prices. OPEC officials met on Monday and Tuesday in Abu Dhabi to discuss how the group can increase producer’s compliance levels, especially countries like Iraq and UAE. Following the meeting OPEC said the conclusions reached during the meeting would help boost compliance. The statement lacked details and did not have any concrete information on how a higher compliance can be reached leaving the market skeptical. Saudi Arabia, who has the highest compliance rate amongst producers looks determined to get rid of the glut. Saudi Arabia is most likely to cut allocations to its customers worldwide in September by at least 520 MBb/d said a Reuters report. However, this did not have a significant effect on prices, given lack of information from the meeting and Libya’s Sharara Field coming back online after a brief disruption over the weekend.
As Saudi Arabia’s efforts to normalize inventory levels is increasing bullish sentiment, continuously rising US production and higher OPEC production month over month are increasing the bearish sentiment. Recent tensions between US and North Korea, as well as summer driving season coming to an end are also increasing the bearish sentiment in the market. As stated here previously, without continued high compliance with production quotas and concurrent realization of the demand growth projected by IEA, there is little chance for the inventory normalization. Without inventory normalization, there can be no sustained price recovery. The potential for tests of $39/Bbl has become remote and Drillinginfo expects the primary range in the mid- to high-$40/Bbl to hold the near-term trade.
Please find the updated Drillinginfo charts on the link below: