US crude oil stocks increased by 0.9 MMBbl last week. Gasoline and distillate stocks posted sizeable withdrawals of 5.5 MMBbl and 5.2 MMBbl respectively. Yesterday afternoon, API had reported a crude oil withdrawal of 0.5 MMBbl, while reporting gasoline and distillate withdrawals of 5.8 MMBbl and 5.0 MMBbl respectively. Analysts were expecting a crude withdrawal of 0.4 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a significantly large withdrawal of 12.2 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be up 1,101 MBbl/d from last week per EIA’s estimate. Lower 48 production increased 1,109 MBbl/d (due to Gulf of Mexico recovering from Hurricane Nate). Alaska production decreased 8 MBbl/d. Imports were up by 640 MBbl/d last week to an average of 8.1 MMBbl/d. Refinery inputs averaged 16.0 MMBbl/d (586 MBbl/d more than last week), leading to a utilization rate of 87.8%. The large withdrawals in gasoline and distillate were expected as refinery maintenance season begins. The report is bearish due to the unexpected increase in crude oil stocks. Prices are down, with prompt month WTI trading down $0.30/Bbl at $52.17/Bbl.
Prices traded in the $51-$53/Bbl range last week. Prices rose to a six-month-high on Tuesday to settle at $52.47 following the large gasoline withdrawal reported by API as well as bullish comments from the Saudi oil Minister Khalid al-Falih.
On Tuesday, Khalid al-Falih said that Saudi Arabia remains focused on reducing oil stocks to their five-year average and hinted on prolonging output restraints once the OPEC supply cuts comes to an end in March 2018. The comments from the oil minister increased the bullish sentiment in the market, which was already supported by the unrest and geopolitical tensions in the Middle East. With the nuclear agreement under review there is a possibility of crude supplies being disrupted from Iran, which is one of the forces supporting prices. In addition to the uncertainty in Iran, prices are also getting support from Iraq, where Iraqi forces took control over the oil fields in the city of Kirkuk which caused crude outages in the region. Although most of Iraq’s production comes from the southern part of the country, the unrest in Kirkuk could take up to 600 MBbl/d off the market if the situation gets worse.
General sentiment in the market remains bullish as geopolitical tensions in the Middle East continue to support prices. Prices may also get some support in the near-term on anticipation of OPEC to shed some light on the possibly of extending the quotas during their November 30th meeting in Vienna. In the meantime, the possibility of US producers increasing activity, as well as the potential for Libya and Nigeria to add more production to the market will keep a lid on prices.
As previously stated here, continued high compliance with production quotas and realization of the demand growth projected by IEA will need to occur simultaneously for any chance of near-term inventory normalization. Without inventory normalization, there can be no sustained price recovery. Drillinginfo expects the potential trade to stay between $50-$53/Bbl in the near term until the geopolitical tensions in the Middle East are resolved and the market once again looks for long-term signs of inventory normalization.
Please find the updated Drillinginfo charts on the link below: