US crude oil stocks decreased by 1.8 MMBbl last week, alongside a distillate withdrawal of 1.9 MMBbl, while gasoline inventories posted a smaller draw of 0.4 MMBbl. Yesterday afternoon, API had reported a crude oil and distillate builds of 0.89 MMBbl and 1.8 MMBbl respectively, alongside a gasoline withdrawal of 1.9 MMBbl. Analyst on the contrary had expected a crude withdrawal of 2.3 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted an increase of 4.3 MMBbl. For a summary of the crude oil and petroleum product stock movements, see table below.
US production was estimated to be down 9 MBbl/d (decrease in Alaska production offset the increase from Lower 48) from last week per EIA’s estimate. Imports were up 970 MBbl/d last week to an average of 8.6 MMBbl/d. Refinery inputs averaged 17.1 MMBbl/d (363 MBbl/d more than last week), leading to a utilization rate of 93.4%. Although the total petroleum products build is bearish, the crude oil withdrawal is bullish and it’s driving prices up following the release. WTI prices are up $0.54/Bbl to $49.20/Bbl at the time of writing.
WTI prices have been trading in the $47-49/Bbl range. The growing expectation on OPEC extending cuts has increased the bullish sentiment in the market. Prices rallied sharply (more than 3%) on Monday following a joint press conference from Saudi and Russian oil ministers. The two ministers Khalid al-Falih and his Russian counterparty Alexander Novak said they have agreed to do whatever it takes to achieve stabilizing the market and reducing commercial oil inventories to their 5-year average level. Other OPEC nations such as Kuwait, Iraq, Oman and Venezuela being in support of extending the cuts also lifted the bullish sentiment. In the meantime, continuously increasing US activity and production is still keeping a lid on prices and driving the bearish sentiment. More bearish news came from expectations of North Sea oil production increasing by 0.4 MMbbl/d in the next two years due to improving the operational efficiency.
Although OPEC still has not announced the final decision on production cuts, the expectation of a quota extension is growing as most producing countries are favoring extending the cuts. This expectation will continue to support prices, as increasing US activity and high inventory levels will continue keeping a lid on prices. IEA’s latest report shows signs of the oil market re-balancing, however, in order to bring global inventories back to the five-year average, not only do quotas need to be extended into 2018 but also a high compliance level needs to be achieved both from OPEC and non-OPEC countries. It is also important to note that, a higher price environment after the OPEC meeting may increase concerns further over increasing US production. DrillingInfo expects WTI prices to remain in the $42.20-$50.22/Bbl technical range. Longer term prices will be shaped by the outcome of the OPEC meeting on May 25th and its effects on the stubbornly high global inventories, especially during the high demand summer season.
Please find the updated Drillinginfo charts on the link below:
Petroleum Stocks Chart