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Insights across the energy value chain

US crude oil stocks posted an increase of 7.1 MMBbl from last week. Gasoline and distillate inventories decreased 4.2 MMBbl and 2.4 MMBbl, respectively. Yesterday afternoon, API reported a crude oil build of 7.29 MMBbl while reporting gasoline and distillate draws of 0.39 MMBbl and 3.1 MMBbl, respectively. Analysts were expecting a crude oil build of 0.4 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a small decrease of 0.4 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

US crude oil production remained the same last week, per the EIA. Crude oil imports were up 1.08 MMBbl/d last week, to an average of 7.0 MMBbl/d. Refinery inputs averaged 16.0 MMBbl/d (100 MBbl/d more than last week), leading to a utilization rate of 87.5%. Prices are being pushed down by the large crude oil inventory build. Increasing US production and restarting of Libya’s El Sharara field, as well as global economic and demand growth uncertainty will keep the pressure on prices while OPEC-led supply cuts and hopes that a trade deal may actually happen between US and China will be supporting prices. Prompt-month WTI was trading down $0.60/Bbl, at $55.96/Bbl, at the time of writing.

Prices have been inching upward since their sharp decline last Friday, trading in the $56/Bbl to $57/Bbl range. WTI futures finished last week with a loss of nearly 3%, ignoring the bullish news on OPEC output reaching lowest levels in nearly four years as the trade continued to focus on global economic and demand-growth worries.

The fall in Chinese factory activity to its lowest in three years, slow growth pace in American manufacturing, and US-China trade disputes not being resolved by the imposed deadline of March 1 raised once again the worries about global economic and energy demand growth. The bullish news on OPEC reducing its production by 300 MBbl/d in February from a month earlier and reaching the lowest output levels since 2015 was offset by the economic and demand-growth worries.

Monday came with some bullish headlines and helped prices bounce back from their sharp decline. Hopes on a trade deal agreement between the US and China increased again on Monday, as both parties seemed keen to reach a trade deal agreement that would roll back US tariffs on at least $200 billion worth of Chinese goods while China promises to end tariffs on the US. Prices also got support from continuing OPEC-led supply cuts and the possibility of an extension of the cuts after June to further tighten the market and reduce the risk of a supply overhang. Another catalyst that supported the increase in prices was Russian Energy Minister Alexander Novak telling reporters that Russia will bring its oil production cut to 228 MBbl/d from the October level. This certainly increased the bullish sentiment as Russia was one of the wildcards during the supply cut discussions and their participation was always questioned. On the bearish side, the restart of Libya’s El Sharara oilfield will put some pressure on prices, as Libya’s oil production will increase by nearly 300 MBbl/d, which means OPEC production will increase that much as well. The US production growth will also be keeping the pressure on prices, especially if prices continue to trend upward and pipeline takeaway capacity issues in the Permian basin are alleviated. Moving forward, Drillinginfo expects that the market will continue to trade on the news around the trade talks and the potential for an extension of the supply cuts. However, the trade shouldn’t get ahead of itself and should keep an eye on the fundamentals, which still show that we are oversupplied as we head deeper into refinery maintenance.

Petroleum Stocks Chart

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