US crude oil stocks decreased 2.1 MMBbl last week. Gasoline inventories decreased 1.7 MMBbl while distillate inventories increased 0.8 MMBbl. Yesterday afternoon, API reported a crude oil build of 1.25 MMBbl, while reporting a gasoline draw of 1.49 MMBbl and a distillate build of 1.56 MMBbl. Analysts, to the contrary, were expecting a crude oil draw of 2.7 MMBbl. The most important number to keep an eye on, total petroleum inventory levels, posted a decline of 0.4 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.
US crude oil production was estimated to be up 100 MBbl/d from last week, per EIA. Crude oil imports were up 433 MBbl/d last week, to an average of 8.0 MMBbl/d. Refinery inputs averaged 17.4 MMBbl/d (442 MBbl/d less than last week), leading to a utilization rate of 95.4%. The crude oil withdrawal and supply shortage worry due to Iranian sanctions are supporting prices. Prompt-month WTI was trading up $1.11/Bbl, at $70.96/Bbl at the time of writing.
Prices traded in the tight range of $68/Bbl to $69/Bbl last week. Prices are being tugged in both directions with bullish sentiment increasing as supply shortage worries from Iranian sanctions as well as declining Venezuelan production, while the bearish sentiment is increasing as the trade war between US-China continues to escalate further threatening the overall health of global economy and demand growth.
Prices gave up their gains from last week as the anticipated effect from Hurricane Florence did not materialize. The bullish sentiment gained some strength as reports that Saudi Arabia would be comfortable with higher price environment ($80/BBl-Brent) and may not be too eager to increase production levels in anticipation of losses from Iran and continuing Venezuelan production. Although Saudi Arabia has increased production in the last couple months, the latest reports are rumors that are supporting the bullish sentiment. OPEC and non-OPEC Joint Technical Committee will be meeting this weekend, and discussions around the production quotas and supply increases to offset declines from Iran and Venezuela are expected to be in the agenda.
Until further clarification materializes from the meeting this weekend, prices are expected to have limited gains, although Iranian exports are showing signs of declines as more buyers are reducing their imports ahead of the second round of US sanctions on Iran to be effective in November. The main catalyst in pressuring prices and limiting the gains is the ongoing and escalating US-China trade dispute. President Donald Trump already announced the 10% import duties on $200 billion in Chinese products that will come into effect on Sept. 24 and will rise higher by end of the year. President Trump also threatened China with imposing tariffs on $267 billion of additional imports if China retaliated. The trade war between US-China could worsen as China already responded with tariffs on $60 billion in US goods. Prices will continue to see further downward pressure from the ongoing US-China trade dispute as the situation clouds the outlook for crude demand and health of global economy. Increasing US production as well as the possibility of OPEC and Russia replacing the lost supply from Iran and Venezuela will also support prices in the near term.
The failure of prices to stay above $71/Bbl suggests that this level will provide definable resistance to any further runs. Price declines will meet buying associated with the 200-day moving average, which is currently $65.65/Bbl. The market will continue to feed off additional news for an extension beyond $71/Bbl up to the June highs at $75/Bbl. If news around tariffs continues to pressure prices, a breakdown below the key average will likely take prices down to the April lows around $62/Bbl. When all the current headline news plays out and some of the uncertainty fades, prices are likely to consolidate into a lower range. With the quota easement, continued US production growth, and the fears of weaker demand growth, Drillinginfo believes the long-term range will occur between $58/Bbl-$65/Bbl.
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