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US crude oil stocks increased by 5.3 MMBbl last week. Gasoline and distillate inventories increased by 0.7 MMBbl and 0.3 MMBbl respectively. Yesterday afternoon, API had reported a crude oil and distillate build of 3.6 MMBbl and 3.0 MMBbl respectively. Analysts had expected a 1.5 MMBbl/d increase in crude oil stocks, according to a Reuters survey. The most important number to keep an eye on, total petroleum inventories, posted an increase of 7.1 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be down 11 MBbl/d from last week per EIA’s estimate. Imports were up 0.981 MMBbl/d last week to an average of 8.4 MMBbl/d. Refinery inputs averaged 16.1 MMBbl/d (309 MBbl/d more than last week), leading to a utilization rate of 89.2%. The petroleum stocks report is bearish, with crude oil posting a larger build than that expected by analysts alongside builds in both gasoline and diesel inventories. During refinery maintenance season, although crude oil stocks are expected to grow, product inventories are expected to post withdrawals. The large increase in total petroleum stocks this week has nullified last week’s withdrawal. Despite the inventory build, prompt month WTI prices are up $0.46/Bbl following the report, trading at $46.27/Bbl at the time of writing.
Crude oil prices recovered from continued declines yesterday as the market reacted to the OPEC secretary general traveling to member nations to discuss details of the proposed supply cut. Additionally, crude reversed much of the declines immediately following the stockpile data today after Russia said it believes an OPEC agreement is likely. Much of the bounce in crude oil prices for the last couple of days can be attributed to short covering ahead of a very uncertain two weeks leading up to the official OPEC meeting. As discussed in this space before, OPEC continues to face an uphill battle in assigning and enforcing quotas.
The latest news diminishing the possibility of a successful cut came last Friday when OPEC announced that October production grew 240 MBbl/d from the previous month to 33.64 MMBbl, making the 32.5-33.0 MMBbl/d production target harder to achieve. The IEA released their latest data Thursday, showing that supply increased by 800 MBbl/d in October, leading them to believe that the oversupply will now last well into 2017 if OPEC fails to act.
Crude oil demand indicators have been bearish as well with last week’s Chinese data showing that imports in October fell to 6.8 MMBbl/d in October, down from 8.1 MMBbl/d the prior month. Chinese demand is suffering from a slowdown in imports into strategic reserve and teapot refiners reaching import quotas. Due to the slowdown in approvals for additional import quotas for teapot refiners, the lower demand is expected to persist through the end of the year.
The dollar will continue to play a role in the future of crude oil prices as the market re-evaluates the impact of a Trump victory. Thursday will be an important day for the direction of the dollar, as Yellen will appear before the Congressional Joint Economic Committee and the market looks for indicators regarding the status of a December interest rate hike. Expect WTI prices to react to the perceived likelihood of an OPEC production cut and the value of the dollar in the short-term. In terms of supply and demand fundamentals, without the OPEC cut, the world remains oversupplied and price gains will be limited by the growth potential of the US at WTI prices between $50-$55/Bbl.
Please find the updated DrillingInfo charts on the link below:
Petroleum Stocks Chart