US crude oil stocks decreased by 1.0 MMBbl last week, alongside a distillate withdrawal of 2.0 MMBbl, while gasoline inventories posted a build of 1.5 MMBbl. Yesterday afternoon, API had reported crude oil and distillate withdrawals of 0.84 MMBbl and 1.8 MMBbl respectively, while reporting an unexpected gasoline build of 1.4 MMBbl. Analysts had expected a higher crude oil withdrawal of 1.5 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a withdrawal of 1.7 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
EIA Estimates Production to Be Up
US production was estimated to be up 17 MBbl/d from last week per EIA’s estimate. Imports were down 68 MBbl/d last week to an average of 7.8 MMBbl/d. Refinery inputs averaged 16.9 MMBbl/d (241 MBbl/d more than last week), leading to a utilization rate of 92.9%. The petroleum stocks report is bullish, due to the withdrawal in crude oil and the total petroleum inventories withdrawal. However, WTI prices are slightly down $0.16/Bbl to $52.25/Bbl at the time of writing.
WTI Prices Shrinking, while Rig Count Increases
WTI prices have been trading down recently, amid concerns about further growth in U.S output as well as continuous rig count increases. Outages in Libya and North Sea as well as instability in Middle East are still giving support to WTI prices. WTI prices also got support recently from the willingness of Saudi Arabia extending production cuts to further decrease the supply. However, on Tuesday Saudi Arabia’s Energy Minister Khalid al-Falih said “it is pre-mature to talk about extending the cut”. His comments dampened the excitement and definitely increased the bearish sentiment as Saudi Arabia has been giving signals for extending the cuts. OPEC is expected to meet in late May on deciding if the cuts will be extended beyond June. The sentiment in market is bearish right now amid Khalid al-Falih’s comments as well as EIA’s new drilling productivity report showing shale output in May was expected to post the largest monthly increase in more than two years.
Inventories Keep a Lid on Potential Price Increases
Global crude oil and petroleum product inventories still remain at high levels and will continue to keep a lid on potential price increases. Until inventories can be normalized to levels from prior to the price crash, prices can’t rise sustainably. For inventories to normalize, OPEC must extend quotas and keep high compliance levels and demand must rise by the 1.3 MMBbl/d expected by the IEA. Unless both of these occur concurrently, inventories will remain higher than normal levels, keeping prices from rising to $60/Bbl next year. Drillinginfo believes that the low end of the new range still remains at $47/Bbl, having tested that level multiple times and failing to break below. Recent price action has developed the high end of the new range at the mid-$53/Bbl level. Expect any price increases to be sold in hedging activities by producers. Additionally, the gains have left prices approaching over bought levels, so slight corrections should be expected.
Please find the updated Drillinginfo charts on the link below:
Petroleum Stocks Charts