US crude oil stocks posted a decrease of 1.7 MMBbl last week. Gasoline and distillate inventories both showed sizeable increases of 8.1 MMBbl and 10.6 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 6.1 MMBbl alongside a gasoline build of 5.5 MMBbl and a distillate build of 10.2 MMBbl. Analysts were expecting a crude oil withdrawal of 3.3 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted an increase of 13.3 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 454 MBbl/d last week, to an average of 7.8 MMBbl/d. Refinery inputs averaged 17.6 MMBbl/d (194 MBbl/d less than last week), leading to a utilization rate of 96.1%. Trade talks between the US and China concluding with positive sentiment and recent OPEC supply cuts are lifting prices as WTI broke through the $50/Bbl mark for the first time in 2019; however, large increases in total inventories are pressuring prices. Prompt-month WTI was trading up $2.45/Bbl, at $52.23/Bbl at the time of writing.
Prices had been rising for the last couple of weeks, recovering from crashing to their lows for more than 18 months. The supply overhang and concerns about slowing economic growth and demand for oil products caused a collapse in prices of more than 40 percent between October and late December. In the last couple of weeks, prices have gotten support from initial evidence of Saudi Arabia and OPEC keeping their promise to slash supply, as well as US-China talks in Beijing extending to an unscheduled third day and ending with hopes that the world’s two largest economies would bring a halt to and potentially solve the trade disputes.
Bullish sentiment increased further this week with WTI reaching above $50/Bbl for the first time in 2019. The increase in prices was due to Saudi Arabia already starting to reduce supply levels drastically and reducing shipments, mainly to the US. Saudi Arabia’s efforts in reducing supply erased some of the skepticism as to whether OPEC would stay loyal to their quotas. Russia’s efforts in reducing supply as one of the main non-OPEC producers in the supply cut deal increased the bullish sentiment further. The other catalyst that is giving strong support to prices is the highly anticipated trade talks between the US and China that started on Monday. The meeting between the world’s two largest economies ended today with positive news and hopes that a trade war between the two countries could be avoided thus not impacting the global economy and oil demand moving forward. Officials from the countries said details around the meeting will be released soon. On the US side, the positive jobs number has somewhat calmed worries about an impending recession for the time being; however, increasing US production is still supporting the bearish sentiment.
The rally in WTI due to positive news around the US-China trade talks took prices over $50/Bbl this week. The low end of this new range seems to be established at the June 2017 low of $42/Bbl. Drillinginfo expects prices to remain volatile within a $40-$50/Bbl window over the next month as the market tries to make sense of the fundamentals. The impacts of the production cuts and the changing demand dynamics (both seasonally and geopolitically) will dictate the direction of prices out of the range. Extensions downward could be driven by further stock builds like the one this week. Extensions upward will be met with selling due to the stock number this week and would require a surprise reversal of the overhang in the first several months of the year.