US crude oil stocks decreased by 1.9 MMBbl last week. Gasoline stocks remain unchanged, while distillate inventories increased by 0.3 MMBbl. Yesterday afternoon, API had reported a crude oil withdrawal of 6.4 MMBbl, alongside a gasoline build of 0.9 MMBbl and distillate withdrawal of 1.7 MMBbl. Analysts, were expecting a more modest crude withdrawal of 2.1 MMBbl. The most important number to keep an eye on, total petroleum inventories remained unchanged and maintained levels from the week prior. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be up 13 MBbl/d from last week per EIA’s estimate. Lower 48 production increased 20 MBbl/d while Alaska production decreased 7 MBbl/d. Imports decreased by 25 MBbl/d last week to an average of 7.9 MMBbl/d. Refinery inputs averaged 16.8 MMBbl/d (199 MBbl/d more than last week), leading to a utilization rate of 91.3%. The report is bullish due to crude oil inventory withdrawal. Prices are up, with prompt month WTI trading up $1.01/Bbl at $57.84/Bbl.
Prices traded in the $55-$57/Bbl range last week and edged closer to $57/Bbl on Tuesday following the bullish API report. Prices extended their gains into Wednesday following news on Keystone cutting deliveries by at least 85 percent through the end of November due to a 5,000 Bbl leak in South Dakota, along with an expected crude inventory withdrawal. WTI reached $58.05/Bbl earlier in the day, the highest since July 2015.
Prices are being pulled in both directions ahead of the Nov. 30th OPEC meeting in Vienna. The consensus in the market is that OPEC will extend the production cuts beyond the March 2018 expiration date. However, Russia’s unwillingness to join the possible extension is causing some skepticism around OPEC’s extension to supply cuts and what it would look like without Russia’s cooperation. In addition to Russia’s stand on supply cut extensions, rising Iraqi crude production has also complicated the dynamic in the market. Iraq crude exports rose to record highs in November (150 MBb/d higher than October) as Iraq is trying to offset the crude export disruptions from the Northern region Kirkuk to the Turkish port of Ceyhan.
OPEC’s efforts in balancing the market is getting some help from declining Venezuelan production and the uncertainty around countries production levels moving into next year. However increasing production from Iraq, non-OPEC producers and the US would offset and could overturn the loss caused by Venezuela. OPEC will be in a tight spot ahead of the meeting, as the market has increased their bullish bets on crude futures with expectations of a supply cut by the group. Any bearish news from the meeting would send the market into a selling spree and send prices into a downward spiral. While any bullish news and a price rally will incentivize US producers to hedge production at higher prices and increase production rapidly in addition to the possibility of higher Iraqi and Libyan production.
The market has now held over $49.00/Bbl for over a month, establishing that as the low end of the new range. It is still critical regardless of the outcome from the OPEC meeting, that high compliance with production quotas and realization of the demand growth projected by IEA will need to occur to reach the five-year average inventory levels. Without inventory normalization, the price recovery will not be sustained. Drillinginfo expects the trade to return to the previous range $50-$55/Bbl in the coming weeks as fundamentals start to settle back in.
Please find the updated Drillinginfo charts on the link below:
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