US crude oil stocks decreased 9.9 MMBbl last week. Gasoline inventories increased 1.2 MMBbl, while distillate remained at the same level. Yesterday afternoon, API reported a significant crude oil draw of 9.2 MMBbl, while reporting gasoline and distillate builds of 1.2 MMBbl and 1.8 MMBbl, respectively. Analysts were expecting a much smaller crude oil draw of 2.6 MMBbl. The most important number to keep an eye on, total petroleum inventory levels, posted a decline of 4.6 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 62 MBbl/d from last week, per EIA. Crude oil imports were up 114 MBbl/d last week, to an average of 8.4 MMBbl/d. Refinery inputs averaged 17.8 MMBbl/d (115 MBbl/d more than last week), leading to a utilization rate of 97.5%. The report is bullish due to higher-than-expected and significant crude oil withdrawal. Prompt-month WTI was trading up $2.24/Bbl, at $72.77/Bbl at the time of writing.
WTI prices spiked Tuesday and have increased to their highest levels since May after the Trump administration’s extreme efforts to disrupt Iranian crude exports as much as possible and further worries about supply disruptions from Libya, Venezuela and Canada.
Last week the highly anticipated OPEC meeting took place and resulted in the group deciding to raise output by approximately 700 MMBbl/d. However, the exact number and by whom the output would be raised was unclear and was not specified. The results from the OPEC meeting didn’t have much impact on prices, as quota easement was already baked into prices. The flexibility around the output raise will give Saudi Arabia the ability to respond to any issues arising from US and allies’ sanctions on Iran or additional losses from Venezuela. Meanwhile, Russia will likely raise output as much as it can, given expectations around Venezuela’s production further declining and Iranian sanction that could materialize.
The price spike on Tuesday was due to the US State Department stating it will require companies to cut all imports from Iran to zero by November. The US government went a step further, and called on all its allies to zero out their imports of oil from Iran by November 4, or else face sanctions. The extreme efforts taken by the US to limit Iranian exports will be supporting prices further, especially while US-China trade wars continue to heat up.
Supporting the bullish sentiment even more are the current supply outages in Canada and Libya as well as the terminally declining Venezuelan production. The combination of these outages as well as the US government going the extra mile to make sure Iran’s crude supply is disrupted as much as possible will most likely continue to support bullish sentiment until the sanctions materialize.
As the market takes a bullish stance around supply outages and Iranian sanctions, the news around Saudi Arabia possibly increasing its output to nearly 10.8 MMBbl/d in July from the current levels of 10.0 MMBbl/d and continuously increasing US production will limit the price increases.
Until the market can understand what the quota easement will likely mean and Iranian sanctions materialize, WTI prices will remain volatile. Eventually, after the volatility recedes and consolidation commences, prices will settle in a range of between $58/Bbl and $65/Bbl. The quota easement and continued US growth lead Drillinginfo to believe that the supply and demand for crude may force a retracement of prices to a range of between $58/Bbl and $61/Bbl.