US crude oil stocks increased by 2.3 MMBbl last week. Gasoline and distillate inventories decreased by 1.3 MMBbl and 2.4 MMBbl respectively. Yesterday afternoon, API had reported a crude oil and distillate withdrawal of 4.1 MMBbl and 1.5 MMBbl respectively, as well as a 2.0 MMBbl gasoline withdrawal. Analysts had expected a crude oil and distillate withdrawal of 2.3 MMBbl/d and 0.9 MMBbl/d respectively, along with gasoline build of 1.1 MMBbl/d. The most important number to keep an eye on, total petroleum inventories, posted a decrease of 11.9 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be down 10 MBbl/d from last week per EIA’s estimate. Imports were up 1.1 MMBbl/d last week to an average of 8.5 MMBbl/d. Refinery inputs averaged 16.7 MMBbl/d (184 MBbl/d more than last week), leading to a utilization rate of 91.5%. The petroleum stocks report is bearish, as U.S crude inventories increased and was not aligned with expectations, however the crude build was more than offset by the withdrawals in petroleum products. Market has reacted to the unexpected build in crude stocks, prompt month WTI prices are down $0.20/Bbl, trading at $53.10/Bbl at the time of writing.
WTI prices have been trading in the $50-55/Bbl range for the past week as the market is weighing the bullish proposed production cut from OPEC and non-OPEC producers vs. the bearish upside that mid-$50/Bbl crude prices provide for US production potential. Bullish news this week include Saudi Arabia, Kuwait, and UAE notifying customers that they will cut supply in January, Russia’s assertion that all of the country’s oil companies have agreed to reduce output, and IEA’s revised (200 MBbl/d higher) demand forecast due to revisions to Chinese and Russian consumption numbers. On the bearish side, Iraq has signed new deals with Asian customers despite their commitment to reduce output, Libya is close to increasing output after a pipeline that connects major oilfields was put back in service, higher prices are allowing US producers to continue to add rigs to the fleet, and the value of the dollar is causing affordability concerns for crude oil. WTI prices have a floor in the high-$40/Bbl level due to the possibility of successful production cuts. Until definitive data from the countries involved in the cuts show up in late January the market will remain skeptical about the prospects of the cut. The ceiling is set at mid-$50/Bbl price levels as those prices would incentivize further production growth in the US. Moving in to the new year, Drillinginfo expects prices to stay rangebound within these levels with thin trade. Any moves outside of the range will be driven by solid data regarding the success of the production cuts.