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Refined Product Stocks Build Caps Recent Crude Gains


U.S. crude oil stocks remained unchanged from last week. Gasoline and distillate inventories both showed sizeable increases of 6.9 MMBbl and 9.5 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 4.5 MMBbl alongside a gasoline build of 8.0 MMBbl and a distillate build of 4 MMBbl. Analysts were expecting a crude oil withdrawal of 1.3 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted an increase of 14.6 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

U.S. crude oil production remained the same last week, per the EIA. Crude oil imports were down 264 MBbl/d last week, to an average of 7.4 MMBbl/d. Refinery inputs averaged 17.8 MMBbl/d (410 MBbl/d more than last week), leading to a utilization rate of 97.2%. Trade talks between the U.S. and China set for next week and recent OPEC supply cuts are lifting prices even though total inventories increased. Prompt-month WTI was trading up $0.83/Bbl, at $47.92/Bbl at the time of writing.

Prices had been declining since the managed money long positions started liquidating after growing tired of waiting for oil prices to climb higher given Venezuelan production declines, Iranian sanctions, and the impending OPEC cuts. This week, the market has gotten support from the expectation that trade talks between the U.S. and China next week could help demand. Worries had been growing that the world’s second-largest economy was facing a slowdown in growth and that this would have an impact on oil demand. In addition to the talks, the positive move by the Chinese central bank to cut the cash reserves ratio by 1% signaled their intention to keep the economy on a healthy growth trajectory. On the U.S. side, the positive jobs number has somewhat calmed worries of an impending recession for the time being.

The additional production cut of 1.2 MMBbl/d from OPEC and other quota-carrying countries took effect this month as well. Compliance by Russia (the largest non-OPEC quota-carrying country) is still a question mark, however, as they have stated that they intend to reach compliance steadily by the end of the period rather than the beginning of the year. The first quarter is the lowest demand season of the year, so the impact of the cuts will not be reflected in the fundamentals until the second quarter. This is evidenced once more by the fact that crude oil inventories this week remained unchanged in the U.S. and total inventories built by a sizeable 14.6 MMBbl on the back of high gasoline and distillate builds.

Drillinginfo expects prices to remain volatile within a $40-$50/Bbl window over the next month as the market tries to make sense of the fundamentals. The impacts of the production cuts and the changing demand dynamics (both seasonally and geopolitically) will dictate the direction of prices out of the range. Extensions downward could be driven by further stock builds like the one this week. Extensions upward will be met with selling due to the stock number this week and would require a surprise reversal of the overhang in the first several months of the year.

Petroleum Stocks Chart

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