US crude oil stocks decreased by 2.4 MMBbl last week. Gasoline and distillate inventories increased by 3.4 MMBbl and 2.5 MMBbl respectively. Yesterday afternoon, API had reported a crude oil withdrawal of 2.2 MMBbl alongside gasoline and distillate builds of 0.8 MMBbl and 4.1 MMBbl/d respectively. Analysts had expected a crude oil withdrawal of 1.4 MMBbl/d and a distillate build of 1.2 MMBbl/d. The most important number to keep an eye on, total petroleum inventories, posted a build of 1.4 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
See Drillinginfo EIA Charts.
US production was estimated to be down 2 MBbl/d from last week per EIA’s estimate. Imports were up 755 Mbb last week to an average of 8.3 MMBbl/d. Refinery inputs averaged 16.4 MMBbl/d (134 MBbl/d more than last week), leading to a utilization rate of 90.4%. The petroleum stocks report is bearish, as the larger than expected builds in gasoline and distillates offset the crude oil withdrawal and caused total petroleum inventories to grow. Prompt month WTI prices are down $1.03/Bbl, trading at $49.90/Bbl at the time of writing.
Since OPEC announced their production cut of 1.2 MMBbl/d, WTI prices have been rising. On Tuesday, however, realities began to set back in. The market has again started doubting OPEC’s ability and willingness to follow through on their promised production cuts. A Reuters survey showed on Tuesday that OPEC’s November production was 34.19 MMBbl/d, up from the 33.82 MMBbl/d from the month prior. That would mean that OPEC members would now have to cut an even larger amount than the promised 1.2 MMBbl/d to reach the targeted 32.5 MMBbl/d quota. Additionally, Libya and Nigeria, who were exempted from quotas at the OPEC meeting currently have offline production that could be brought back online should the situation on the ground allow, reversing some of the intended effects of the cuts. In further bearish supply-side news, Russia reported average oil production of 11.21 MMBbl/d in November, setting a 30-yr. high. Also, news that Saudi Arabia and Kuwait may resume oil production from the Neutral Zone added to concerns that the quotas will remain only on paper. Saudi Arabia also made clear its intent to continue to fight for market share, as Aramco cut their selling price to Asia for January. Russia had recently overtaken Saudi Arabia as the largest exporter to China. On Saturday, OPEC and non-OPEC producers will be meeting to discuss the details of non-OPEC participation in the production cuts. Out of 14 countries that were invited, only four (Russia, Oman, Bahrain, Azerbaijan) are set to attend. Russia alone had agreed to cut 300 MBbl/d contingent on “technical ability”. The recently higher production levels would mitigate the effects of the 300 MBbl/d cut. Also, the recent move for market share by Saudi Arabia in the Asian market and the presence of private operators in Russia make their willingness and ability to participate in the cut questionable. Drillinginfo expects prices to be volatile as the market reacts to any production cut related news, but if the hopes of a successful cut are not completely dashed, expect a floor on prices going below $45/Bbl.