US crude oil stocks decreased by 6.4 MMBbl last week, alongside a gasoline withdrawal of 2.9 MMBbl, while distillate inventories posted a build of 0.4 MMBbl. Yesterday afternoon, API had reported a crude oil and gasoline withdrawal of 8.7 MMBbl and 1.7 MMBbl respectively, while reporting a distillate build of 0.1 MMBbl. Analysts had expected a much lower crude withdrawal of 2.8 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a decrease of 5.2 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be up 22 MBbl/d from last week per EIA’s estimate. Imports were down 309 MBbl/d last week to an average of 8.0 MMBbl/d. Refinery inputs averaged 17.5 MMBbl/d (229 MBbl/d more than last week), leading to a utilization rate of 95.0%. The petroleum stocks report is bullish, due to sizeable withdrawals in crude oil and total petroleum inventories. WTI prices are up $0.48/Bbl to $48.80/Bbl at the time of writing.
WTI prices have been trading in the $48-50/Bbl range since the OPEC meeting. The price movement after the OPEC meeting was disappointing for the market. Expectation on extending the cuts further was already baked in to the prices prior to the meeting and the market was expecting OPEC to deepen the cuts to make a significant impact on reducing inventories. It did not take too long for the market to take a bearish sentiment and raise doubts if Russia, Saudi Arabia, and rest of OPEC can really deliver and rebalance the market with the proposed cut extension. Prices fell to their three-week lows on Wednesday after Libya production increasing to a three-year high of 0.83 MMBbls/d. Increasing Libyan production gave a boost to OPEC crude output in May, which also showed the first monthly rise this year. Besides Libya, who has the potential to increase production further, Nigeria and Iran not having caps on their production is also increasing the bearish sentiment.
The combination of high demand season during 3Q and 4Q2017 along with OPEC cuts may deliver a steeper stock withdrawal in 2H2017. However, it is important to note that full compliance from OPEC members for the extended quota period in conjunction with expected demand growth (1.33 MMBbl/d per IEA) will be necessary. However, continuously rising US production and possible growth from Libya, Nigeria, and Iran will be working against rebalancing of inventories. Any significant rise in prices will trigger US producers to hedge future production which will increase US production even faster. OPEC’s decision will provide a strong floor for prices, however all other bearish elements will keep a lid on large gains. Drillinginfo expects WTI prices to trade in the $49-$52/Bbl range. Longer term prices will be shaped by success of OPEC’s cut extension and its effects on the stubbornly high global inventories, especially during the high demand season.
Please find the updated Drillinginfo charts on the link below:
Petroleum Stocks Report
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