Oil prices remain closely tied to the 53 handle on a WTI crude oil basis. The bulls continue to wait until OPEC’s cuts start to reduce imports which should not occur for another two weeks. For the bears, this week was another surge in inventories, but they will need to wait another few weeks before the bulls run for the hills. Imports in the latest week surged, with OPEC increasing their component by 800K barrels per day, which shows that nobody made the decision to begin to cut early.
In total, the Energy Information Administration reported that U.S. crude oil imports averaged about 9.4 million barrels per day, up by 1.1 million barrels per day. Since it likely does not incorporate any new cuts, the concept that OPEC is complying at an 80% rate does not really matter.
The large increase in imports has buoyed inventories. The weekly estimates released by the EIA showed an increase in crude oil inventories by nearly 14-million barrels compared to expectations of an increase of 2.5 million barrels. Total commercial inventories were only higher by 1.4-million barrels as declines in propane and other products offset the large build in crude oil stocks.
Gasoline stocks dropped by nearly 1-million barrels, so despite what appears to be a reduction in demand, inventories are edging lower. Distillate fuel were flat. Propane inventories fell 6.9 million barrels last week which put total petroleum inventories higher by by 1.4 million barrels last week. The large export of propane is generating the need for crude oil.
Demand, is higher, which obviously is driven by propane. Total products demand over the past month averaged about 19.9 million barrels per day, up by 0.3%. Gasoline demand appears to be declining. The EIA reported that over the last four weeks, gasoline demand averaged over 8.3 million barrels per day, down by 6.0% from the same period last year. This is likely to be a function of over estimating exports of gasoline in 2016, which is now generating a negative demand number in 2017. Prices have not climb to the extent that there would be demand destruction, and the U.S. is not entering a recession which is what this number reflects. Distillate fuel demand averaged about 3.9 million barrels per day over the last month, up by 7.6% from the same period last year.
Prices dropped following the report but quickly rebounded and settled into the same oil range near 53. What is clear is that production in the United States is attempting to quickly replace any short-fall that could occur if OPEC complies with their output reduction. The 50-per barrel level, appear to be the floor where U.S. producers are happy to produce oil. Lower levels, saw reduction to drilling rig activity, while current levels has seen a surge according to the drilling rig activity report released by Baker Hughes every Friday. OPEC is only expected to cut production for 6-months, which means that is inventories are not balance by July, prices will likely move lower.