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Insights across the energy value chain

US crude oil stocks posted a large increase of 9.9 MMBbl from last week. Gasoline inventories increased 0.9 MMBbl and distillate inventories decreased 1.3 MMBbl. Yesterday afternoon, API reported a crude oil build of 6.8 MMBbl, alongside gasoline and distillate draws of 1.1 MMBbl and 2.1 MMBbl, respectively. Analysts were expecting a crude oil build of 2.0 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a significant increase of 12.7 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 265 MBbl/d last week, to an average of 7.4 MMBbl/d. Refinery inputs averaged 16.4 MMBbl/d (137 MBbl/d less than last week), leading to a utilization rate of 89.2%. The significantly large crude oil and total petroleum stocks build pushed prices down offsetting some of the support from the turmoil in Venezuela and Libya. Prompt-month WTI was trading down $0.95/Bbl, at $62.96/Bbl, at the time of writing.

After topping the $66/Bbl level after the US government’s announcement it was canceling Iranian sanction waivers and bringing Iran exports to zero, prices sharply declined on Friday after President Donald Trump told reporters that he “called OPEC” seeking lower gasoline prices, and tweeted later that he had discussed increasing oil flows with Saudi Arabia and that “all were in agreement.” In addition to President Trump’s comments, the expectation of lost Iranian barrels eventually getting replaced by production increase from OPEC and Russia also pressured prices.

Prices steadied and recovered some of their losses at the beginning of the week as the market shrugged off President Trump’s comments, given that none of the OPEC and Saudi representatives came forward to acknowledge his comments and any discussions occurring between the parties. In addition to uncertainty around Trump’s comments, prices got support from the news from Venezuela that opposition leader Juan Guaido called the population and the military to seize power from President Nicolas Madura, as well as from a statement by Saudi Arabia that a deal between producers to withhold output could be extended beyond June to cover 2020.

It is unclear what OPEC’s decision will be in terms of supply cuts, and the decision will most likely depend on Iranian production and global supply-demand levels in July as OPEC gears up for their meeting. Until then, both bearish and bullish headlines and geopolitical turmoil (Venezuela and Libya being key countries) will most likely cause volatility and be the main driver for prices. Any significant gains in prices will be capped by gloomy global economic and demand growth projections and continuously increasing US production.

As expected, prices consolidated, retracing to lows from early April trade. The declines during a week that contained the elimination of sanction waivers suggest that expectation had already been part of the price run. As traders continue to digest the headlines, prices are likely to have a higher level of volatility near term than in recent months. The high side of the range that the volatility will test is between $65/Bbl and $68/Bbl, with last week’s high similar to the highs established in January 2018 ($66.66/Bbl). This area held the market for four months before the major break-out in spring and summer 2018. With the weak close, expect continuation of the declines, perhaps testing the support from the March break-out area ($60.00/Bbl) in the coming weeks.

Petroleum Stocks Chart

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