US crude oil stocks posted an increase of 4.9 MMBbl last week. Gasoline and distillate inventories decreased 1.3 MMBbl and 0.1 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 1.55 MMBbl, while reporting a gasoline build of 0.71 MMBbl and a distillate draw of 1.8 MMBbl. Analysts, to the contrary, were expecting a crude oil build of 2.9 MMBbl. The most important number to keep an eye on, total petroleum inventory levels, posted a decrease of 0.2 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.
US crude oil production remained unchanged last week, per EIA. Crude oil imports were up 102 MBbl/d last week, to an average of 7.6 MMBbl/d. Refinery inputs averaged 16.9 MMBbl/d (423 MBbl/d more than last week), leading to a utilization rate of 92.7%. The crude oil build and President Donald Trump doubling down on his defense of Saudi Arabia thanking the Kingdom for helping to keep prices down are pressuring prices, while the news regarding OPEC and Russia potentially introducing supply cuts in 2019 are giving support to prices. Prompt-month WTI was trading up $0.92/Bbl, at $54.35/Bbl at the time of writing.
Prices traded within the $56/Bbl-$58/Bbl range for the most part last week, under pressure from globally growing supply levels, while seeing some relief from the European Union potentially joining the Iranian sanctions and OPEC possibly introducing new supply cuts in 2019. However, prices sank to their lowest level ($53.43/Bbl) since October 2017 on Tuesday, falling nearly 7%. In just seven weeks, WTI prices fell nearly 30% dropping to their lowest level over a year from their four-year highs in early October.
The sharp decline in prices over the past seven weeks has been due to fears of a new supply glut, given the increasing supply levels mainly from OPEC, Russia, and the US, as well as weakening global economic and demand growth. The waivers granted to eight countries for Iranian sanctions by the US government were the final blow to prices and completely shifted sentiment to bearish. The further declines on Tuesday came in part due to the pullback in the stock market as well as the White House’s statement about “standing with Saudi Arabia.” President Donald Trump on Tuesday signaled that he will not be punishing Saudi Crown Prince Mohammed bin Salman or the Kingdom for the death of the journalist Jamal Khashoggi. President Trump said: “Saudi Arabia, if we broke with them, I think your oil prices would go through the roof.” President Trump’s comments certainly increased the bearish sentiment, as he signals that he is willing to keep US-Saudi relations good in order to persuade the Kingdom to shy away from any potential supply cuts so the prices stay low.
Last week OPEC and Russia signaled a potential joint production cut in order to prevent a global supply glut. However, prices were not affected by this bullish headline, because a decision was not made. Although OPEC seems to be in favor of a new round of supply cuts in 2019, Russia does not seem to be on the same page, as Russia’s energy minister, Alexander Novak, said it was too early to make a decision to reverse course. OPEC will be re-grouping in Vienna on December 6 to discuss and determine its next move in terms of potential supply cuts.
Although news about OPEC potentially reducing supply levels remains as a bullish headline, the market seems to be ignoring this, given Russia’s current stance on the matter. Prices will continue to be under pressure with increasing supply levels, a lower demand growth projection and worsening trade disputes. As prices continue to breach new lows and given the fundamentals and bearish news in the market, further pressure on prices is expected. The past seven weeks have done significant damage to the bullish WTI run of 2018. News that OPEC and Russia will reevaluate their production increases in the future may bring limited support. However, a decision will not be made until the next OPEC meeting, which will take place in Vienna on Dec. 6. Drillinginfo continues to believe the long-term range will occur between $60/Bbl and $65/Bbl for an extended period of time, with the short-term range being between $55/Bbl and $60/Bbl as the market waits to hear news from the next OPEC meeting.
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