Crude oil traded lower today after the Energy Information Administration reported a substantial build in crude oil inventories, at 9.9 million barrels for the last week of April.
The report followed a surprising build estimate from the American Petroleum Institute, of 6.8 million barrels, which pushed prices lower yesterday.
The EIA inventory build follows an increase of 5.5 million barrels for the third week of April. Last week, the EIA report helped prevent a spike in prices after the U.S. State Department announced it would not be renewing Iran sanction waivers for importers of Iranian oil after they expire today.
Since then, prices have continued relatively stable, especially after Saudi Arabia said on more than one occasion that it was ready and willing to step in and replace the lost Iranian barrels. However, this week has seen an escalation in Venezuela that may serve as a booster to prices even though there seems to be more talk about a power takeover by Guaido than actual action for the time being.
In the meantime, the EIA also reported gasoline inventories last week had risen by 900,000 barrels, with average daily production ahead of refinery maintenance season rising on the week to 9.9 million bpd from 9.8 million bpd a week earlier.
Distillate fuel inventories shed 1.3 million barrels last week, compared with a decline of 700,000 barrels a week earlier. Production of distillate fuels averaged 5.1 million bpd, flat on the average daily production rate in the previous week.
Processing rates at U.S. refineries averaged 16.4 million bpd last week versus 16.6 million bpd a week earlier.
Over the next few days prices are likely to remain stable unless the situation in Venezuela escalates further even though its steadily falling production and the blackouts that caused upgrader outages last month should have made traders be ready for anything when it comes to Venezuela. The effect of the Iran sanction waiver remover will likely continue to be muted, especially since it's likely that Iran will find a way to continue exporting its crude despite the end of waivers.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
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Comments
1. First, let's look back to how unfolding event since 22/04/19 is affecting the movement of oil price -The price of Brent was 71.94 by close market on the 18/04/19, the market was closed until 22/04/19 because of Good Friday. I like to remind everyone, before the Iran waiver announcement on 22/4, Brent price oil at $71.94, market participants were expecting USA would extend the waivers or at least partially extend waivers to some countries. So when the surprising news came out, Brent went as high as $75 the next a few days.
2. Brent price today, 04/05/19 , is at $70.82, that is more than $1 lower than the price before 22/04. Logically speaking, it is very difficult to explain such a price movement, it is impossible to justify the argument that more sanctions against Iran and Venezuela will bring the oil price down. So what other factors which brought down the oil price ? Let's look at them one by one.
3. Trump called to OPEC to raise its production to fill the gap caused by sanction. Trump told one reporter he had called OPEC on the 24/04/19, Friday, again the end of the week, he was smart to choose Friday because he knew the media would not be able to verify the call over the weekend. To his surprise, WSJ and CNBC reported that call was never made. Here is the link https://www.cnbc.com/2019/04/26/saudis-opec-deny-discussing-lowering-oil-prices-with-trump-report.html
However, the WSJ report was published on Saturday 26/04/19, the following Monday, the mainstream news kept reporting Trump call to OPEC, everyone seemed either never read the WSJ or forgot about it and hoodwinked by mainstream propaganda news. It worked magically as the oil price started to fall from $75 day after day afterwards.
4. Another fake speculation was Russia was intending to not to extend OPEC production cut after the end of June. Putin was attending OBR conference in China that weekend, he made a clear statement that Russia had no intention to end OPEC agreement but abide it. Here is the news link which ws again ignored by most mainstream news. https://www.bloomberg.com/news/articles/2019-04-27/putin-says-countries-in-opec-deal-are-abiding-by-agreement
5. The most convincing data for bearish argument is that USA crude inventory and USA crude production has been on the rise since the the end of 2018, though look through the EIA weekly reports we can find the following anomalies: USA crude inventory has increased from 441m/b ( 28/12/18) to 470m/b (28/04/19), crude production has increased from 11.7mb/d (28/12/18)to 12.3mb/d (28/04/19), while USA crude imports has also increased from 7.3mb/d (28/12/18) to 7.4mb/d (28/04/19), both gasoline and distillate inventories have significantly decreased - Gasoline from 244m/b to 226m/b, distillate from 130m/b to 125m/b ( from 28/12/18 to 28/04/19). The two anomalies I like to bring attention are: increase of USA crude production did not reduce USA crude import; increase of USA crude did not result USA refineries to produce more refined supplies for the economy, rather the increase only result significant drawl from gasoline and distillate inventories. I am still very puzzled, the only explanation I can come up is that most experts only focus on the quantity of USA crude production. According to renowned oil geologist Art Berman, Permian tight oils, had the biggest production increase, now accounts for 27% USA total production while GOM oil had biggest decline and only accounts for 15% of USA production. We know tight oil is ultra light oil while GOM ( off shore ) is medium grade oil; if this trend persists, we can assume the quality of USA future crude production will be lighter and lighter. For most refineries both in USA and around the world, only medium heavy crude can be made for its feed stock, ultra light oil has little commercial value, only used as a dilute to blend with heavy grades. I hope this explains the significant crude builds last three months, it simply indicates the USA refineries simply starts to reject using some of USA light crude, so those extra crude must be either be exported or goes to storage as inventory. Though I guess the export market is very limited as refineries in other country also can not use too much light oils.
6. Brent price reached $85 a barrel September 2018, the high price was because the market was expecting full Iran oil sanction would be in force after October 2018, meanwhile OPEC called a special meeting last August to increase production to fill the future supply gap. When USA surprised everyone, decided to give waivers to all importers, the oil price tanked as low as $50 in December. Now, the full Iran oil sanction is in full force, no waivers to any importers, while OPEC and Russia has agreed to cut 1.5m/d in their last OPEC meeting, they also have every intention to keep the cut until end of this year. What price should Brent be Now?