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US crude oil stocks increased 2.1 MMBbl last week. Gasoline and distillate inventories increased 4.6 MMBbl and 2.2 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 2.0 MMBbl, alongside a gasoline build of 3.8 MMBbl and a distillate draw of 0.8 MMBbl. Analysts were expecting a crude oil draw of 1.8 MMBbl. The most important number to keep an eye on, total petroleum inventory levels, posted a significantly large build of 15.8 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

US crude oil production was estimated to be up 31 MBbl/d from last week, per EIA. Crude oil imports were up 715 MBbl/d last week, to an average of 8.3 MMBbl/d. Refinery inputs averaged 17.4 MMBbl/d (214 MBbl/d more than last week), leading to a utilization rate of 95.4%. The report is bearish due to unexpected crude oil build and significantly large total petroleum stocks build. The bullish news from Venezuela as the crude output from the country worsens due to political upheaval is working against the bearish sentiment due to crude and total petroleum stocks build. Prompt-month WTI was trading down $0.69/Bbl, at $64.83/Bbl at the time of writing.

WTI prices traded in the $65-67/Bbl range last week. Prices have been on a decline since the sharp fall the previous week after it was announced that Saudi Arabia and Russia along, with other OPEC members would restore output as much as 1.0 MMBbl/d in order to ease global supply concerns.

The timing as to when OPEC would restore the production is yet to be answered, and will remain a mystery until the next OPEC meeting, which will be in Vienna on June 22. The market definitely took a more bearish position after the possibility arose of OPEC pumping more crude to offset the Venezuelan declines and Iranian sanctions, which are yet to be announced. The production-restoring news currently is outweighing the bullish sentiment from continuously declining production from Venezuela and the impact of US sanctions on Iranian supply.

Prices saw further pressure on Tuesday as news surfaced that the US government has unofficially asked Saudi Arabia and some other OPEC producers to raise oil output by some 1 MMBbl/d. The request came in after the crude price rally which also caused a surge in the US retail gasoline prices, pushing them to their highest in more than three years. It is unclear how the US request was communicated to OPEC producers, and it will also be interesting to see if this request will have any impact, and of what sort, on OPEC’s decision during their June 22 meeting.

While the market continues focus on upcoming the OPEC meeting, the recent request by the US, increasing US production, and the large spread between Brent and WTI further incentivizing US producers to increase their production and exports to overseas will continue to pressure prices.

As prices start to test lower levels with short positions increasing along with the bearish sentiment, the market could eventually settle into a new range (or a consolidation period), and whether the low end of the range is at the early April lows ($61.80-$62.00/Bbl) or higher – remains to be defined. Last week’s high ($68.87/Bbl) will likely be near the top of the range. Prices will remain volatile as the market continues to monitor the quota decision, Venezuelan declines, the impact of Iranian sanctions, demand trends, and growing US production. When this volatility subsides, the market will inevitably trade to a range reflecting the fundamentals. Should OPEC reinstate the 1 MMBbl/d of production, Drillinginfo believes a retracement back to $55/Bbl levels could become a reality in the longer term. In the short-term, expect prices to test the bottom of the current range noted above.

Petroleum Stocks Chart

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