After Brent and WTI both fell yesterday as traders started taking profit on the latest price rally, the EIA reported that U.S. crude oil inventories went up in the week to November 3, by 2.2 million barrels, rejecting API estimates of a 1.562-million-barrel draw.
Analysts polled by S&P Platts had forecast a 2.7-million-barrel draw in crude inventories, as well as a 2.25-million-barrel decline in gasoline stockpiles. The EIA said gasoline stockpiles did indeed decline, by 3.3 million barrels, which should provide some support to bulls, especially with the surprise build in crude oil inventories.
Gasoline production last week averaged 10.2 million bpd, an increase on the previous week, with refineries operating at 89.6 percent of capacity and processing 16.3 million barrels of crude oil daily.
It won’t be surprising if we soon see a greater rise in production and, possibly exports. While WTI continues to trade at a comfortable discount to Brent, buyers will prefer it over Brent-linked grades. What’s more, with both benchmarks at two-year highs, there is a strong motivation for drillers to drill more.
The current rally may prove to be a lasting one, unlike the recent price spike after a variety of comments from both OPEC and Russian energy officials. But this time, the game is different: it’s a Middle Eastern version of Game of Thrones, and even if things don’t come to a head, the hostile exchange of threats would be enough to support oil prices at least until November 30.
Both sides in the Saudi-Iran conflict would benefit from higher oil prices, but it would be more meaningful to the Kingdom as it plans to list its national oil company in H2 2018—whether it could keep threatening Iran until then is doubtful, so the possibility of an open conflict is a real one.
By Irina Slav for Oilprice.com
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