US crude oil stocks decreased by 2.6 MMBbl last week. Gasoline inventories increased by 0.5 MMBbl and distillate inventories decreased by 0.8 MMBbl. Yesterday afternoon, API had reported a crude oil build of 4.7 MMBbl along with gasoline and distillate builds of 3.9 MMBbl and 0.2 MMBbl/d respectively. Analysts had expected a crude oil withdrawal of 1.5 MMBbl/d. The most important number to keep an eye on, total petroleum inventories, posted a withdrawal of 2.0 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be up 99 MBbl/d from last week per EIA’s estimate. Imports were down 943 MBbl/d last week to an average of 7.4 MMBbl/d. Refinery inputs averaged 16.5 MMBbl/d (57 MBbl/d more than last week), leading to a utilization rate of 90.5%. The petroleum stocks report is bullish, as the crude oil withdrawal was larger than expected. Gasoline stocks increased by a lower amount than API had forecasted and distillate inventories actually posted a decline, leading to a lower total petroleum inventories number. However, prompt month WTI prices are down $0.33/Bbl, trading at $52.65/Bbl at the time of writing on other news.
Price gains continued Monday following the announcement that non-OPEC producers would contribute to the already agreed upon OPEC cuts. On Saturday, eleven non-OPEC producers committed to 558 MBbl/d of production declines over the first half of the year. Russia is expected to contribute 300 MBbl/d of the cuts by the end of March. It is prudent to keep in mind that Russia is agreeing to cutting from near record high production volumes at a time when some of their fields go into maintenance mode. Outside of Kazakhstan and Oman, who were expected to grow production prior to committing to the cuts, the rest of the producers agreeing to the cut were largely in decline mode. Hence, their contributions are merely a formalized restatement of their already naturally declining volumes. The IEA report on Tuesday featured mixed bullish and bearish signals. On the bullish side, the IEA said that the agreement to reduce production by nearly 1.8 MMBbl/d between OPEC and non-OPEC producers could cause a supply deficit of 600 MBbl/d in 1H2017. Also, the IEA raised the 2017 demand forecast by 120 MBbl/d to 1.4 MMBbl/d due to revisions to Chinese and Russian consumption numbers. However, the same report had some bearish signals in it as well. The IEA said that OPEC production had grown to 34.2 MMBbl/d in November, which means that the size of the OPEC cuts need to be 1.7 MMBbl/d to reach the 32.5 MMBbl/d production quota starting in January. OPEC released its own report this morning showing that production had grown to 33.87 MMBbl/d in November, up 150 MBbl/d from their October estimate. Elsewhere, the report that North Dakota production had climbed back above 1 MMBbl/d in October injected some more bearish sentiment into the market. Also, the Federal Reserve’s widely expected decision to raise interest rates will be unveiled today. If the expectation holds, crude oil prices are likely to suffer, as the dollar will become stronger. However, it is important to keep in mind that a higher interest rate is largely factored in to the value of the dollar already. Expect prices to move with market sentiment regarding the success of the OPEC production cuts. Data showing that the quotas are getting harder to implement will force prices to retreat lower.