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US crude oil stocks posted a sizeable decrease of 9.6 MMBbl from last week. Gasoline and distillate inventories decreased 4.6 MMBbl and 4.1 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 2.1 MMBbl alongside gasoline and distillate draws of 2.8 MMBbl and 1.6 MMBbl, respectively. To the contrary, analysts were expecting a crude oil build of 0.3 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a large decrease of 12.6 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

US crude oil production increased 100 MBbl/d last week, per the EIA. Crude oil imports were up 0.19 MMBbl/d last week, to an average of 6.9 MMBbl/d. Refinery inputs averaged 16.2 MMBbl/d (178 MBbl/d more than last week), leading to a utilization rate of 88.9%. The large and higher than expected crude oil draw as well as total petroleum stocks inventory draw are pushing prices near the $60/Bbl level. Prices are also supported by expectations of deeper supply cuts by Saudi Arabia and Russia, however, increasing US production and ongoing US-China trade disputes are keeping a lid on price gains. Prompt-month WTI was trading up $0.31/Bbl, at $59.34/Bbl, at the time of writing.

Prices have been on an upward trend and traded in the $58/Bbl to $59/Bbl range last week as bullish news weighed in on the trade. On Monday, prices reached their highest levels since November on expectations that OPEC and non-OPEC producers would increase compliance levels and possibly extend the supply cuts beyond the June expiration date.

Oil prices have recovered from their slump at the end of the year, increasing more than 20 percent after OPEC and non-OPEC countries announced and started executing on supply cuts of about 1.2 MMBbl/d. The bulk of the reduction so far came from Saudi Arabia, and the declining production levels from Iran and Venezuela due to sanctions and political crisis. The supply cuts and lower OPEC output had already increased the bullish sentiment, but prices got further support on Monday following the Joint Ministerial Monitoring Committee (JMMC) meeting in Azerbaijan. During the short meeting, the committee stated that compliance levels have increased to 90% in February. Also during the meeting, the JMMC decided to cancel the upcoming meeting in April, as current market fundamentals still point to an oversupplied market. The decision regarding whether to extend or halt the supply cuts for the second half of the year will be made during the OPEC meeting June 25-26 in Vienna. Comments from Saudi Arabia and Russia over the weekend also supported prices, as both parties made promises to continue and possibly deepen the production cuts beyond the 1.2 MMBbl/d level until June to bring a balance to the market.

Although global supply levels have tightened since OPEC-led supply cuts and bullish news continued to pile on, significant price gains are still being limited by continuously increasing US production and the fears of a slowdown in global economic and demand growth as US-China trade disputes continue to dampen the economic outlook. US production is showing no signs of slowing down and will increase further in 2019, as many of the operators are beginning to hedge production at higher prices and are projecting double-digit growth rates for 2019, which could potentially offset the supply cuts by OPEC and non-OPEC producers. The ongoing US-China trade negotiations are another risk for prices, as trade talks continue between the world’s two largest economies but seem to get nowhere. Failure to reach an agreement could mean a huge threat to already concerning global economic and energy demand growth, which could potentially pressure prices further.

The trade had a positive bias all week, with most of the gains occurring with the inventory release. While maintaining a positive bias, market internals confirm the unsettled commitment, as open interest declined week over week and volumes declined after the breakout on Wednesday, as there was little follow-through to the gains. Prices gained more momentum and extended their gains due to bullish headlines over the weekend and on Monday. Moving forward, Drillinginfo expects that the market will continue to trade on the news around the trade talks, the potential for an extension of the supply cuts, and any news surrounding the US sanctions on Iran and waivers that were granted as we approach the deadline for Iranian sanction waivers. Should prices take a consolidation pause to the gains, a retracement and a range development could be expected between $55.00/Bbl as the low and the levels from this week as the high side.

Petroleum Stocks Chart

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