US crude oil stocks posted an increase of 3.7 MMBbl from last week. Gasoline and distillate inventories both decreased 1.5 MMBbl. Yesterday afternoon, API reported a crude oil build of 1.26 MMBbl while reporting gasoline and distillate draws of 1.55 MMBbl and 0.76 MMBbl, respectively. Analysts were expecting a larger crude oil build of 3.1 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a decrease of 2.5 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.
US crude oil production increased 100 MBbl/d last week, per the EIA. Crude oil imports were up 1.3 MMBbl/d last week, to an average of 7.5 MMBbl/d. Refinery inputs averaged 15.7 MMBbl/d (57 MBbl/d less than last week), leading to a utilization rate of 85.9%. Prices are still hovering near 2019 highs but are pressured by the crude oil build, slowdown in global economic and demand growth and uncertainty around US – China trade dispute. The ongoing OPEC-led supply cuts and declining Venezuelan and Iranian production are supporting prices. Prompt-month WTI was trading down $0.40/Bbl, at $56.77/Bbl, at the time of writing.
Prices have been on an upward trend and traded in the $54/Bbl to $56/Bbl range last week. WTI prices finished the day on Wednesday at their highest levels in three months as global supply surplus started decreasing due to OPEC-led cuts and Saudi Arabia’s willingness to balance the market. Bullish news on temporary supply outages and a weaker dollar also supported prices.
The pressure on prices due to high supply levels and weaker global economic and demand growth has been fading away for the last couple of weeks. Supply cuts by OPEC and non-OPEC countries have been successful so far, with Saudi Arabia reducing its output significantly in order to balance the market and bring support to prices. Declining Venezuelan production and US sanctions on Iranian crude also supported OPEC’s case to reduce global supply levels. In addition to OPEC-led supply cuts, prices have also been getting support from Saudi Energy Minister Khalid al-Falih’s comments on how committed the kingdom is to bringing a balance to the market. Khalid al-Falih has been very vocal stating, that Saudi Arabia can reduce their production further and beyond the pledged levels in March. On Wednesday, al-Falih said he hoped the oil market would be balanced by April and that there would be no gap in supplies due to US sanctions on Iran and Venezuela. News around Nigeria possibly joining the supply cuts also helped the uptick in prices. A spokesman for Nigerian President Muhammadu Buhari said that the country is willing to reduce oil output to secure higher prices. The partial shut-down of the Safaniyah oil field and the Yanbu refinery for maintenance by Saudi Arabia and the production halt in Libya’s largest oil field El Sharara are also supporting prices in the near term.
The continuously increasing US production and the skepticism around the US – China trade wars are the two main catalysts pressuring and limiting further price gains. US production can increase further in 2019 when pipeline takeaway capacity issues are alleviated in the Permian Basin. The US – China trade dispute – although it has thawed in the last couple of weeks – is still a wildcard and a huge threat to global economic and demand growth, if a deal cannot be reached.
The latest increase in prices is mainly due to the OPEC-led supply cuts and a tighter crude market. Now the market will be closely watching the tariff negotiations between China and the US and the potential impacts on the global economy. These negotiations will resume as the countries are trying to work out an agreement before the self-imposed March 1 deadline. Success in these efforts will lead to a more bullish environment for prices and likely foster enough support to test the WTI highs from mid-November at $57.96/Bbl. Failure to secure the agreement will pressure prices, initially down to $50/Bbl, where the market consolidated in early January.
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