Bullish Report Due To Larger Than Expected Petroleum Stocks Withdrawal

Bullish Report Due To Larger Than Expected Petroleum Stocks Withdrawal

US crude oil stocks increased by 4.6 MMBbl last week. Gasoline and distillate stocks decreased by 2.1 MMBbl and 5.7 MMBbl respectively. Yesterday afternoon, API had reported a crude oil build of 1.4 MMBbl, alongside gasoline and distillate withdrawals of 5.1 MMBbl and 6.1 MMBbl respectively. Analysts were expecting a larger crude build of 2.4 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a sizeable withdrawal of 6.6 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.

US production was estimated to be up 157 MBbl/d from last week per EIA’s estimate. Lower 48 production was reported to be up 179 MBbl/d (still recovering the impact of Hurricane Harvey), while Alaska production decreased 22 MBbl/d. Imports were up by 888 MBbl/d last week to an average of 7.4 MMBbl/d. Refinery inputs averaged 15.2 MMBbl/d (1.1 MMBbl/d more than last week), leading to a utilization rate of 83.2%. The report was bullish given that the higher than expected build in crude oil stocks was more than offset by the decline in refined products, which led to a sizeable decline in total petroleum inventories. Additionally, the report showed that refining capacity utilization was picking up following the outages associated with Hurricane Harvey. Prices are up on the bullish release, with prompt month WTI trading up $0.87/Bbl at $50.77/Bbl.

Prices have been trading in the $49-$50/Bbl range, finding trouble breaking the $50/Bbl resistance level. Prices edged lower Tuesday, retreating from their five month highs on the expectations for a build in crude oil inventories given recovering imports. The bullish report Wednesday has so far reversed that trend. The market has been bullish for the last week following the IEA monthly report. The report showed OPEC supply declined 210 MBbl/d in August alongside an upward revised growth in demand of 1.6 MMBbl/d (from 1.5 MMBbl/d the prior month). Bullish sentiment is getting further support ahead of the September 22nd OPEC committee meeting in Vienna. The market is closely following news that suggest OPEC may look to extend cuts beyond the current March 2018 expiration of quotas. The news suggests that Saudi Arabia has spearheaded the conversation so far, but Venezuela & Iraq have also remained open to the extension.

The committee has also expressed their intention to reassess Nigeria and Libya’s (two countries exempt from cuts) production plans, as both countries have been increasing their output. These two countries have contributed an additional 605 MBbl/d of production growth since the 2017 low for OPEC production, posted in March. The growth from these countries has greatly undermined the efforts on OPEC’s part to keep output lower to normalize inventories, cutting into more than half of the 11 quota carrying members’ pledged cuts of 1.2 MMBbl/d. Ahead of the meeting, Nigeria announced force majeure on one of the country’s major crude grades. Although this could have a near term bullish effect on prices, it could also hurt the prospects of Nigeria agreeing to a quota. It is highly unlikely that Nigeria or Libya would be interested in capping supply at recent levels if they are below levels that are acceptable to them.

The economics of US production promise higher supply, even in a slightly higher price environment ($5-$10/Bbl). Even if the OPEC quotas are extended, US production potential will serve as a cap on how high prices can go. As previously stated here, continued high compliance with production quotas and realization of the demand growth projected by IEA will need to occur simultaneously for any chance at near-term inventory normalization. Without inventory normalization, there can be no sustained price recovery. The May and April highs ($52/Bbl & $53.76/Bbl respectively) set the high end of the current price range. Given the bullish news in the market and the nature of the inventory release, prices may test these highs. However, US production potential will keep prices from further gains prior to fundamental data showing a clear path to inventory normalization.

Please find the updated Drillinginfo charts on the link below:

Petroleum Stocks Report

A Bearish Build

A Bearish Build

US crude oil stocks decreased by 1.5 MMBbl last week. Gasoline and distillate stocks posted withdrawals of 2.5 MMBbl and 0.2 MMBbl respectively. Yesterday afternoon, API had reported a surprise crude oil build of 1.8 MMBbl while reporting gasoline and distillate drawdowns of 4.8 MMBbl and 1.2 MMBbl. respectively. Analysts, however had expected a crude withdrawal of 2.8 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a build of 1.1 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.

US production was estimated to be up 20 MBbl/d from last week per EIA’s estimate. Lower 48 production was reported to be up 25 MBbl/d, while Alaska posted a decline of 5 MBbl/d. Imports were up by 209 MBbl/d last week to an average of 8.3 MMBbl/d. Refinery inputs averaged 17.4 MMBbl/d (123 MBbl/d more than last week), leading to a utilization rate of 95.4%. The report is bearish due to a smaller than anticipated crude withdrawal, as well the build in total stocks. WTI prices are down $0.27/Bbl to $48.89/Bbl at the time of writing.

Crude prices have been trading in the $48-51/Bbl range. Prices briefly pierced the $50/Bbl mark on Monday with bullish news from the OPEC meeting continuing to resonate. The possibility of the US imposing crude oil related sanctions on Venezuela added to the bullish sentiment. Sanctions could target crude oil imports from Venezuela (currently 720 Mbl/d) or barring PDVSA from doing financial business with US dollars, which would effectively bar exports of refined products from their refineries in the US. The sanctions would create short term volatility in prices. See Drillinginfo’s blog regarding ‘Vendemonium’ here: https://info.drillinginfo.com/drillinginfos-take-vendemonium/.

The two-month high for prices achieved earlier this week was short lived, as a Reuters survey reported OPEC crude output had risen in July by 90 MBbl/d to 33 MMBbl/d, a 2017 high. The increase was mainly led by Libya, who remain exempt from the quotas. Iraq also contributed to the increase in output. The global demand numbers from IEA and the eagerness of Saudi Arabia to make the cuts a success will continue to bring out the bulls and set a floor for prices. However, there are still bearish factors in the form of rising OPEC and US production. Prices around the $50/Bbl level could lead to further hedging by US producers, placing a lid on prices.

Some OPEC and non-OPEC producers will be meeting on August 7-8th in Abu Dhabi to discuss how the group can increase compliance to balance global inventory levels. The anticipation of the outcome of this meeting could create some short-term volatility in prices. As stated here previously, without continued high compliance with production quotas and concurrent realization of the demand growth projected by IEA, there is little chance for the inventory normalization. Without inventory normalization, there can be no sustained price recovery. Recent price action has now expanded the range for WTI prices. The midterm low will likely be $42/Bbl (June and November 2016 low). Trade in the coming weeks will likely confirm the top of the new range ($50-$51/Bbl) and has redefined the low side of the range to $44/Bbl. As previously written, Drillinginfo has been expecting volatile trade and this will continue as the market gains confidence with regards to the pace of inventory normalization. The potential for tests of $39/Bbl has become remote and Drillinginfo expects the primary range in the mid- to high-$40/Bbl to hold the near-term trade.

Please find the updated Drillinginfo charts on the link below:
Petroleum Stock Report

Crude Stocks Down, Prices Up

Crude Stocks Down, Prices Up

US crude oil stocks decreased by 7.6 MMBbl last week. Gasoline inventories decreased by 1.6 MMBbl, while distillate stocks increased by 3.1 MMBbl. Yesterday afternoon, API had reported a crude oil and gasoline withdrawal of 8.1 MMBbl and 0.8 MMBbl respectively, alongside a distillate build of 2.1 MMBbl. Analysts had expected a more modest crude withdrawal of 2.9 MMBbl alongside gasoline and distillate builds of 1.1 MMBbl each. The most important number to keep an eye on, total petroleum inventories, decreased by 3.9 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.

US production was estimated to be up 59 MBbl/d from last week per EIA’s estimate. Imports were down by 132 MBbl/d last week to an average of 7.6 MMBbl/d. Refinery inputs averaged 17.2 MMBbl/d (103 MBbl/d more than last week), leading to a utilization rate of 94.5%. The report is bullish due to a larger than anticipated crude withdrawal, surprise gasoline withdrawal, and the sizeable total stocks withdrawal. The increase in US production and distillate inventories can be interpreted a bearish, but the declining trend in total crude oil and petroleum inventories is decidedly bullish. WTI prices are up $1.25/Bbl to $46.29/Bbl at the time of writing.

Oil prices were up on Tuesday after the EIA revised its US oil production forecast for 2018 down to an annual average of 9.9 MMBbl/d from 10.0 MMBbl/d citing their lower price expectations for crude for the balance of 2017 and in 2018. There was also speculation that Nigeria and Libya may curb output following their invite to attend the OPEC quota monitoring committee meeting on July 24th in Moscow. Additionally, Euroilstock data showed crude oil intake increased and stocks of refined products decreased in June, adding to the bullish sentiment about the start of high demand season. On the bearish side, OPEC’s monthly report (released Wednesday) showed that OPEC production rose 393 MBbl/d in June to 32.611 MMBbl/d led by increases from Nigeria and Libya (exempt from quotas) alongside additional barrels from Saudi Arabia and Iraq. The IEA monthly report will be released tomorrow and their comments regarding the current balance will be closely watched by the market. Rising OPEC and US production continues to keep a lid on prices. As stated here previously, without continued high compliance with production quotas and the realization of the demand growth projected by IEA, there is little chance for the global market to normalize inventories and provide an environment for higher prices. Drillinginfo expects WTI prices to trade in the mid-$40/Bbl range in the short term as the market comes to grips with whether the implied deficit will continue to prompt global inventory normalization. Until global inventories start to decline continuously, longer term price advances will be limited.

Please find the updated Drillinginfo charts on the link below:
Petroleum Stocks Chart

Bearish Sentiment Continues

Bearish Sentiment Continues

US crude oil stocks increased by 0.1 MMBbl last week. Gasoline and distillate stocks posted withdrawals of 0.9 MMBbl and 0.2 MMBbl respectively. Yesterday afternoon, API had reported a crude oil build of 0.851 MMBbl, alongside gasoline and distillate builds of 1.35 MMBbl and 0.678 MMBbl respectively. Analysts had expected a crude withdrawal of 2.5 MMBbl. The most important number to keep an eye on, total petroleum inventories, increased slightly by 0.8 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.

US production was estimated to be down 100 MBbl/d from last week per EIA’s estimate. Imports were up by 140 MBbl/d last week to an average of 8.1 MMBbl/d. Refinery inputs averaged 16.9 MMBbl/d (262 MBbl/d less than last week), leading to a utilization rate of 92.5%. The report has bullish and bearish signals. The build in crude oil, which ran contrary to analyst expectations, and the build in total petroleum inventories were clearly bearish. However, the withdrawals in primary refined products and the decline in EIA’s production estimates could be interpreted as bullish. WTI prices are up $0.28/Bbl to $44.52/Bbl at the time of writing.

WTI prices have continued to trade in the $42-45/Bbl range. The IEA’s monthly report showed the implied deficit for 2Q17 to be 670 MBbl/d (half of the implied deficit from the prior month’s report). Along with that, the commentary that “patience is required” for inventories to normalize have fanned the flames for recent bearish sentiment. The rising overall OPEC production due to growth from Libya and Nigeria (both exempt from quotas) has also exacerbated the concerns on the supply side. The growing US rig count and production estimates are also driving prices lower. Although WTI prices have been lower recently, most US producers have hedged production at higher prices earlier this year, which means US production will continue to grow this year. As stated here previously, without continued high compliance with production quotas and the realization of the demand growth projected by IEA, there is little chance for the global market to normalize inventories and provide an environment for higher prices. Drillinginfo expects WTI prices to trade in the mid-$40/Bbl range in the short term as the market comes to grips with whether the implied deficit will prompt global inventory normalization. Until global inventories start to decline, longer term price advances will be limited.

Please find the updated Drillinginfo charts on the link below:
Petroleum Stocks Chart

Weekly Petroleum Status Report – 5/24/2017

Weekly Petroleum Status Report – 5/24/2017

US crude oil stocks decreased by 4.4 MMBbl last week, alongside gasoline and distillate withdrawals of 0.8 MMBbl and 0.5 MMBbl respectively. Yesterday afternoon, API had reported a crude oil withdrawal of 1.5 MMBbl while reporting gasoline and distillate withdrawals of 3.15 MMBbl and 1.85 respectively. Analysts had expected a crude withdrawal of 2.3 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a decrease of 3.5 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.

US production was estimated to be up 15 MBbl/d from last week per EIA’s estimate. Imports were down 296 MBbl/d last week to an average of 8.3 MMBbl/d. Refinery inputs averaged 17.3 MMBbl/d (159 MBbl/d more than last week), leading to a utilization rate of 93.5%. The petroleum stocks report is bullish, due to sizeable withdrawals in crude oil and total petroleum inventories. WTI prices are up $0.22/Bbl to $51.69/Bbl at the time of writing.

WTI prices have been trading in the $49-51/Bbl range. The recent rally seen in prices is due to the bullish API report from yesterday as well as expectations firming around a nine-month extension on OPEC cuts. Saudi Arabian energy minister Khalid al-Falih flew to Baghdad on Monday in efforts to convince Iraq to join in for the nine-month cut extension. Khalid al-Falih’s efforts seemed to have paid off as Iraqi oil minister Jabar Ali al-Luaibi on Monday said he agreed with Saudi Arabia for a nine-month cut extension. Saudi Arabia’s efforts in rallying OPEC producers to help reduce global oil inventories to their five-year average is helping the bullish sentiment ahead of the May 25th Vienna meeting. In order to normalize inventories back to levels from prior to the price crash, full compliance from OPEC members for the extended quota period in conjunction with expected demand growth (1.33 MMBbl/d per IEA) will be necessary. However, the relentlessly increasing US rig count and possible growth from Libya and Nigeria continue to keep a lid on prices. Should OPEC’s decision on Thursday drive prices higher, US production could increase even further. DrillingInfo expects WTI prices to remain in the $49-$52/Bbl range until the meeting. Longer term prices will be shaped by the outcome of the OPEC meeting tomorrow and its effects on the stubbornly high global inventories, especially during the high demand summer season.

Please find the updated Drillinginfo charts on the link below:
Petroleum Stocks Chart