US crude oil stocks decreased by 1.7 MMBbl last week, alongside gasoline and distillate builds of 2.1 MMBbl and 0.3 MMBbl respectively. Yesterday afternoon, API had reported a crude oil and gasoline build of 2.8 MMBbl and 1.8 MMBbl respectively, while reporting a distillate withdrawal of 1.5 MMBbl. Analysts had expected a crude withdrawal of 2.7 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted an increase of 6.8 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be up 12 MBbl/d from last week per EIA’s estimate. Imports were down 316 MBbl/d last week to an average of 8.0 MMBbl/d. Refinery inputs averaged 17.3 MMBbl/d (29 MBbl/d more than last week), leading to a utilization rate of 94.4%. The report is bearish as the crude oil withdrawal is below analyst expectations and total petroleum inventories posted another sizeable gain. WTI prices are down $1.57/Bbl to $44.89/Bbl at the time of writing.
WTI prices have been trading in the $45-46/Bbl range since last week. Prices rose slightly on Tuesday following news that Saudi Arabia will reduce exports to Asia by 300 MBbl/d in July. However bearish sentiment took over after OPEC’s monthly report showing the group’s output increased 336 MBbl/d in May. The rise in production from OPEC was led by Iraq as well as Libya and Nigeria (the two countries exempt from quotas).
The general sentiment in the market remains bearish as US production shows no signs of slowing down and rig additions continue. Bearish sentiment increased on Monday after the EIA stated that they expect shale output to increase 127 MBbl/d in July from a month earlier. In addition to rising US production, Libya’s expectation to grow production to 1 MMBbl/d by the end of July from the current level of 830 MBbl/d is also playing a big role in pressuring prices. US production levels and global inventory levels will be the focal point in the short term for price movements. As stated here previously, the market needs two elements to occur concurrently: 1) continued high compliance with production quotas and 2) the realization of the demand growth projected by IEA. Unless these happen concurrently, global inventories will not return to normal levels this year and prices can’t sustain at higher levels. However, continuously rising US production and faster than anticipated growth from Libya and Nigeria continue working against the normalization effort. Drillinginfo expects WTI prices to trade in the $45-$47/Bbl range in the short term. Longer term prices will be shaped by success of OPEC’s cut extension and its effects on the stubbornly high global inventories, especially during the high demand season.
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