After yesterday the American Petroleum Institute served a not so pleasant surprise to oil bulls by reporting a 3.43-million-barrel increase in crude oil inventories in the United States, the Energy Information Administration confirmed the bad news, estimating a 6.2-million-barrel increase in U.S. oil inventories for the week to April 27.
Refineries processed 16.6 million bpd of crude producing 10 million barrels per day of gasoline and 5 million barrels of distillate. This compares to 9.9 million bpd of gasoline and 5 million bpd of distillate a week earlier.
Gasoline inventories increased by 1.2 million barrels last week, after an 800,000-bpd increase a week earlier. Distillate stockpiles were down by 3.9 million barrels, compared with a 2.6-million-barrel decline a week previously.
WTI traded at US$67.27 a barrel at the time of writing, with Brent crude at US$72.90. WTI was slightly up from yesterday’s close, while Brent was down a third of a percentage point.
Oil markets anticipate that President Trump will decide to pull out of the Iran nuclear deal, which would lead to a spike in prices, although how high a spike it will be is anyone’s guess: the decision has been expected for a few weeks already.
However, Trump might just surprise everyone by deciding to stay in the deal despite alleged evidence that Iran lied about its nuclear program, which was revealed publicly by Israel’s PM Benjamin Netanyahu. If this happens, prices will definitely correct downwards.
Booming U.S. production will also have a negative impact on price developments when the EIA releases its full weekly petroleum report later in the day. Last week, the daily average stood at 10.59 million barrels, making the U.S. the second-largest producer globally, behind only Russia with 11 million bpd. Yet it is possible that the U.S. will overtake Russia relatively soon: since the start of 2018, daily production has grown by more than a million barrels.
By Irina Slav for Oilprice.com
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Whenever oil prices surge they are followed without fail by claims by the EIA and API about rises in their oil and gasoline inventories. The global oil market has factored these claims in long time ago as more of a hype than reality. That is why we will soon see oil prices surging again from the current $72.73 a barrel to $74-$75.
As for the Iran nuclear deal, it is possible that President Trump will try to play the statesman on the 12th of May and announce to the world that he might consider staying with the Iran deal provided Iran agrees to make some amendments to it. However, he will make his demands so tough thus leaving Iran no choice but to reject them out of hand.
Still, whether he stays in the deal or walks away from it is irrelevant to the global oil market or prices. The global oil market has had enough time to factor in the probability of US withdrawal from the deal. A re-introduction of sanctions on Iran will neither impact on the global oil market nor on oil prices.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London