OPEC shocked the globe with its recent decision to cut production. If a cut is achieved it could be expected that prices will rise. U.S. producers, in turn, would begin to ramp up production. The question at hand is, where will this happen?
As discussed in yesterday’s post, EIA data showed a crude draw of 5.2 million bbls and a build of 2.5 million barrels in gasoline. To go hand in hand with the crude draw, the Midwest saw the largest regional decline, as PADD II drew by nearly 3.5 million bbl, with Cushing responsible for nearly 1.6 million of the drawdown. Going back to the end of April, when inventories were peaking, the U.S. crude reserves have plummeted to a level of approximately 43.4 million bbl. This drop-off in crude stocks can be directly attributed to the loss of 912,000 bpd in comparison to last week, which has lowered U.S. imports to 6.47 million bpd. As a country we have not seen a level this low since all the way back in November of 2015.
The oil market settled higher yesterday, back above $50.00 after a brief two day losing streak, closing at $50.29. Heating oil and RBOB also finished higher at $1.5686 and $1.5057, respectively. This morning the market is moving higher on the heels of yesterday’s API data, which showed a substantial crude draw versus expectations of a build. Crude stockpiles fell 3.8 million barrels, far exceeding what was expected to be a build of 2.7 million barrels. Gasoline had an unexpected build of 929,000 barrels, while distillate stockpiles fell by 2.3 million barrels. Today’s Energy Information Administration figures released by the DOE offered further bullish support. Those figures showed a crude draw of 5.2 million barrels, a gas build of 2.5 million barrels and a distillate draw of 1.2 million barrels. In addition, Cushing, OK had a draw of 1.6 million barrels. As of this writing heating oil has gained ~ $.03 while RBOB is also up $0.0050.
As we trudge along until the OPEC meeting in late November, traders will be closely monitoring the contango in both the crude oil and distillate markets to determine future price paths.
Futures prices have been, for the most part, relatively flat this morning. WTI crude has been hovering around the $50/bbl mark for upwards of a week now, and will likely continue to be the case due to speculation over OPEC’s ability to implement a supply cut/freeze agreement in late November. The slight downward pressure seen by the red numbers on the screen can be attributed to last week’s Baker Hughes report as well as production data from the National Oil Corp.