US crude oil stocks increased by 4.6 MMBbl last week. Gasoline and distillate stocks decreased by 3.2 MMBbl and 1.4 MMBbl respectively. Yesterday afternoon, API had reported a crude oil build of 2.8 MMBbl while reporting a gasoline and distillate draws of 2.5 MMBbl and 0.6 MMBbl respectively. Analysts were expecting a larger crude build of 4.0 MMBbl. The most important number to keep an eye on, total petroleum inventories increased by 7.0 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.

 

US production was estimated to be down 749 MBbl/d from last week per EIA’s estimate. Lower 48 production was reported to be down 783 MBbl/d (Harvey’s impact), while Alaska production increased by 34 MBbl/d. Imports were down by 822 MBbl/d last week to an average of 7.1 MMBbl/d. Refinery inputs averaged 14.5 MMBbl/d (3.3 MBbl/d more than last week), leading to a utilization rate of 79.7%. Although EIA reported a higher crude build than expected, the report brings no surprise as it is reflecting the detrimental effect of Harvey. WTI prices are down $0.20/Bbl to $48.97/Bbl at the time of writing

 

Prices started rising and extending their momentum, closing at a four-week high Wednesday as refineries along the Gulf Coast started reopening that were previously shut down or effected by Tropical Storm Harvey. Exxon is ramping up operations at is Baytown facility, while Valero brought two refineries online, with another large one in Port Arthur scheduled to reopen soon. According to S&P Platts, approximately 2.3 MMBbl of refining capacity was shut down on Sunday and according to the Department of Energy, the amount of shut-down capacity had fallen to 2.1 MMBbl on Monday afternoon.

 

The restarting of refineries is certainly increasing bullish sentiment, however Harvey also disrupted the supply in the region as well. As of Monday, according to BSEE, oil shut-ins were at 121 MBbl/d, as well as onshore production which affected 300 MBbl/d. Prices will be in a volatile environment as the results of Harvey become clearer in the coming weeks, with refineries slowly reopening and crude production recovering and increasing from the Gulf region.

 

Prices may also be affected by Category 5 hurricane Irma which made landfall in the Caribbean earlier Wednesday and is moving towards South Florida, and possibly the Gulf of Mexico. It is unclear how much impact Irma will have on the energy sector.  If any, the impact would mainly be on the demand side as Florida is not a supply region, which could further put short term pressure on prices. There is a small chance it will travel to Gulf of Mexico, which could have huge supply disruptions. Taking advantage of the current pricing environment and market sentiment, Russian energy minister, Alexander Novak hinted that Russia and Saudi Arabia would be open to extending their output cut.

 

In the midst of natural disasters and supply/demand disruption in US, the market has disregarded bearish news from Libya, as the Sharara field reopened after a two-week pipeline blockade. This means Libya’s production will increase approximately 300 MBbl/d, and they can increase production further as they are currently exempted from the OPEC supply cut deal.

 

Harvey has changed the dynamics of energy markets in the short term and Irma may have some impact on the price movement in the short term as well, however, once the effects of these storms diminish and refineries are fully operational and production from US and Libya recovers back to normal levels, continued high compliance with production quotas and concurrent realization of the demand growth projected by IEA will still need to occur for the inventory normalization this year. Without inventory normalization, there can be no sustained price recovery. DrillingInfo expects the primary range around $45-$46/Bbl to hold the trade as the market’s focus shifts back to inventory normalization and global supply levels from temporary disturbances

 

Please find the updated Drillinginfo charts on the link below:

Petroleum Stocks Chart

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