US crude oil stocks decreased 3.6 MMBbl last week. Gasoline and distillate inventories increased 0.5 MMBbl and 0.6 MMBbl, respectively. Yesterday afternoon, API reported a crude oil build of 1.0 MMBbl, while reporting a gasoline draw of 1.7 MMBbl and a distillate build of 1.5 MMBbl. Analysts were expecting a crude oil build of 2.2 MMBbl. The most important number to keep an eye on, total petroleum inventory levels, posted a build of 1.8 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 44 MBbl/d from last week, per EIA. Crude oil imports were down 528 MBbl/d last week, to an average of 7.6 MMBbl/d. Refinery inputs averaged 17.2 MMBbl/d (527 MBbl/d more than last week), leading to a utilization rate of 93.9%. The bullish sentiment from sizable crude oil stocks withdrawal is offset by the news from OPEC possibly making the decision to restore production and bring an end to the supply curbs. Prompt-month WTI was trading down $1.19/Bbl at $67.02/Bbl at the time of writing.
WTI prices traded in the $66-$68/Bbl range since the beginning of the week. Prices endured a hardened fall as WTI and Brent have dropped nearly 10% and 6% respectively from their 3 ½ year highs seen last week. The sharp decline was initiated on Friday when it was announced that Saudi Arabia and Russia along with other OPEC countries would restore output as much as 1.0 MMBbl/d in order to ease global supply concerns. Saudi Arabia energy minister Khalid Al-Falih said OPEC and Russia would supply more oil to offset the sharp declines from Venezuela and the impact of US sanctions on Iranian supply.
The news on OPEC and Russia lifting the supply cuts and restoring production by as much as 1.0 MMBbl/d is certainly supporting the bearish sentiment; however, the timing when this may occur is still unclear. Reports that OPEC may keep supply curbs in place until end of the year may give some support to prices until additional information is released by OPEC. Saudi Arabia and Russia both signaled that a decision on the faith of supply cuts would be made during the next OPEC meeting, which will be in Vienna on June 22.
The market will be focusing on the upcoming OPEC meeting for the next couple of weeks while remaining cautious as there are numerous scenarios that could come out from the meeting. In the meantime, increasing US rig count and production will continue to keep a lid on any possible price gains from additional bullish headlines during this time. Another bearish catalyst will be the high spread between Brent and WTI, as this may incentivize US producers to increase production further to export more crude overseas taking advantage of the high Brent prices.
The market will continue to digest any additional headlines and potential of higher output from OPEC and Russia and the continued growth from the US. Offsetting those price pressures will be the effects from Iranian sanctions and continued Venezuelan production declines. It is becoming clear that additional volatility will be introduced into the market in the coming weeks ahead of the OPEC meeting. When volatility subsides, Drillinginfo expects prices to trade around $65/Bbl. This price level reflects the fundamentals of the market with growing US production, demand limitations (due to higher prices), and the impact of Iranian sanctions, and Venezuelan declines.