A day before OPEC’s meeting in Vienna, where the cartel should announce officially the nine-month extension to its crude oil production cut deal, the Energy Information Administration added to optimism on the market by reporting a healthy draw in crude oil inventories.
According to the authority, inventories fell by 4.4 million barrels in the week to May 19, to a total 516.3 million barrels. The update came a day after the American Petroleum Institute reported a 1.5-million-barrel draw in commercial inventories, falling short of analyst expectations for a decline of 2.3 million barrels. This was the second week when analysts expected an over two-million-barrel draw.
The EIA also said that refinery runs averaged 17.3 million bpd last week, compared with 17.1 million bpd in the previous week. Gasoline production also went up, to more than 10.2 million barrels per day, from 10 million bpd in the week to May 12. Gasoline inventories followed the performance of oil, declining by 800,000 barrels.
The EIA’s latest weekly update comes amid growing optimism for the future of oil prices, as the International Energy Agency and OPEC continue to insist that market rebalancing is near. Both Brent crude and West Texas Intermediate are back above US$50 a barrel, gaining US$5 and more over the last two weeks.
Tomorrow’s announcement from OPEC will probably push prices higher still, and the rally could continue for a while longer this time, as the cartel demonstrated high compliance rates with the initial production cut deal contrary to expectations. Related: OPEC Deal: 9-Month Extension Looking Increasingly Likely
Whether the rally could be sustained, however, remains doubtful. U.S. drillers continue to add rigs, sowing the seeds of future output increases in the shale patch. Although some industry observers are doubtful about how great an increase in production eight new rigs can make, the fact is that more rigs does inevitably mean more production. Regardless of the size of this increase the market tends to react with a knee jerk and prices fall, just like they rise whenever an OPEC official says the output cut deal will be extended.
By Irina Slav for Oilprice.com
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