US crude oil stocks posted an increase of 1.3 MMBbl from last week. Gasoline inventories increased 0.5 MMBbl and distillate inventories decreased 2.3 MMBbl. Yesterday afternoon, API reported a crude oil build of 2.5 MMBbl alongside gasoline and distillate builds of 1.7 MMBbl and 1.1 MMBbl, respectively. Analysts were expecting a crude oil build of 2.18 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a decrease of 3.4 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 up 63 MBbl/d last week, to an average of 7.1 MMBbl/d. Refinery inputs averaged 16.6 MMBbl/d (170 MBbl/d more than last week), leading to a utilization rate of 90.7%. The less than anticipated crude oil build and decline in total petroleum stocks are supporting prices. Prices are also supported by the OPEC-led supply cuts and US sanctions on Venezuelan crude, while the global economic growth concerns and lower demand expectations are pressuring prices. Prompt-month WTI was trading up $0.40/Bbl, at $54.06/Bbl, at the time of writing.
Prices traded in the $53/Bbl to $55/Bbl range last week. It has been a volatile week for prices, as WTI prices reached their two-month highs late last week due to OPEC-led supply cuts and Venezuelan crude sanctions by the US government, only to give up their gains the beginning of this week due to rising supply levels in the US and the continuing concerns about global economic and demand growth.
The OPEC-led supply cuts and Saudi Arabia’s willingness to reduce the supply levels have given some hope to the market in terms of a possible tighter crude market. The bullish sentiment, supported by the cuts, increased due to OPEC production data showing significant reduction in supply levels and Saudi Energy Minister Khalid al-Falih’s comments that the Kingdom will reduce production further in February than it originally had planned. In addition to positive news from OPEC and Saudi Arabia, prices are also getting support from the officially announced US sanctions on Venezuelan crude, which could take out as much as 0.5 MMBbl/d from the market.
Although the recent bullish news from OPEC and Venezuela point to a significant reduction in supply levels, the concerns about a global economic slowdown and demand for crude-related products are still holding a ceiling for prices. The global economic growth was already gloomy due to the ongoing US-China trade dispute, disappointing earnings from industrial firms in US and China, and the Chinese economy posting its weakest growth rate in nearly 30 years. The latest data from the US government showing new orders for US made goods sharply falling in November, increased the concerns about the economic growth and demand slowdown. Also pressuring prices further is the dollar gaining strength as well as the EIA, in its latest monthly report, showing US production increasing significantly. US production has not showed any signs of slowing down and could increase further as the year progresses when the pipeline takeaway capacity issue in the Permian basin is alleviated.
Prices in the near term will be volatile as the market assesses the OPEC supply cuts and waits for a resolution of the trade disputes between the US and China, which is to be decided by the March 2 deadline. 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 continues to suffer, along with other emerging economies, sentiment could shift to bearish again regardless of the OPEC and non-OPEC supply cuts pressuring prices further.
Prices in WTI settled the week up $3.46/Bbl as the market tested the highs from early December and closed the week above those levels. Watch for gains on higher volume and open interest to signify long-term expectation of gains beyond current levels. The next area for the rally to take prices up is the mid-November high of $57.96/Bbl. Should bearish news damage traders’ expectations, then the area around $50/Bbl should find support. Due to the dynamic environment surrounding WTI, prices are still subject to high volatility. Currently, the market is sending a breakout bias, but it can still fall subject to negative news (especially around global growth or failure of a significant deal between China and the US on tariffs) that can cause a quick and brutal blow to the recent gains.