US crude oil stocks decreased by 2.4 MMBbl last week. Gasoline and distillate stocks posted withdrawals of 4.0 MMBbl and 0.3 MMBbl respectively. Yesterday afternoon, API had reported a large crude oil withdrawal of 5.1 MMBbl, while reporting gasoline and distillate withdrawals of 7.7 MMBbl and 3.1 MMBbl respectively. Analysts were expecting a more modest crude withdrawal of 1.4 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a withdrawal of 5.8 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be up 46 MBbl/d from last week per EIA’s estimate. Lower 48 production increased 43 MBbl/d. Alaska production increased 3 MBbl/d. Imports decreased by 552 MBbl/d last week to an average of 7.6 MMBbl/d. Refinery inputs averaged 16.0 MMBbl/d (10 MBbl/d less than last week), leading to a utilization rate of 88.1%. The report is bullish due to the withdrawals in crude oil and total petroleum stocks. Prices are up, with prompt month WTI trading up $0.38/Bbl at $54.76/Bbl.
Prices continued their upward trend and have been trading in the $53-$55/Bbl range last week. Prices rose to their highest today since mid-2015, as OPEC’s compliance increased and the group along with Russia signaled extending the supply cuts.
The continuing geopolitical unrest in northern region of Iraq is still causing crude oil flow disruptions from Kirkuk to the Turkish port of Ceyhan and fostering the bullish sentiment. Disruptions are estimated to have cut the crude oil flow almost in half which was previously flowing around 500 MBbl/d and has the capacity to flow 600 MBbl/d. The Iraqi crude disruptions have also impacted the OPEC production as a Reuters survey showed the group’s production falling by 80 MBbl/d. Prices got further support as expectations for OPEC to extend the supply cuts grew with strong assurances from Saudi Arabia, OPEC officials, and Russia. Statements from the countries and OPEC’s willingness on balancing the market signals that the November OPEC meeting may result in an extension to the production cuts.
The market remains bullish, as the possibility of extension to supply cuts increases and geopolitical tensions in the Middle East continue to support prices. Although we are now in a bullish market, the recent increase in WTI prices and spread between Brent to WTI can trigger US producers to produce and export more crude. Along with possibility of higher production from US producers, Libya’s willingness to increase production back to 1.25 MMBbl/d levels will be the only elements driving bearish sentiment.
Although the market has now held over $49.00/Bbl for over a month, it is still critical that high compliance with production quotas and realization of the demand growth projected by IEA will need to occur in order to reach the five-year average inventory levels. Without inventory normalization, the price recovery will not be sustained. Drillinginfo expects the potential trade to stay between $50-$55/Bbl in the near term, ahead of the OPEC meeting and until the geopolitical tensions in the Middle East are resolved.