U.S. Crude Oil Inventories Increased 6.3M vs 3.6M Expected

by Ike Obudulu Posted on October 24th, 2018

Washington D.C., USA: U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 6.3 million barrels (vs 3.6 million barrels expected) from the previous week. At 422.8 million barrels, U.S. crude oil inventories are about 2% above the five year average for this time of year. Total motor gasoline inventories decreased by 4.8 million barrels last week and are about 6% above the five year average for this time of year.

Finished gasoline and blending components inventories both decreased last week. Distillate fuel inventories decreased by 2.3 million barrels last week and are about 4% below the five year average for this time of year. Propane/propylene inventories decreased by 0.3 million barrels last week and are about 4% below the five year average for this time of year. Total commercial petroleum inventories decreased last week by 8.0 million barrels last week.

U.S. crude oil refinery inputs averaged 16.3 million barrels per day during the week ending October 19, 2018, which was 48,000 barrels per day less than the previous week’s average. Refineries operated at 89.2% of their operable capacity last week. Gasoline production decreased last week, averaging 10.0 million barrels per day. Distillate fuel production increased last week, averaging 5.0 million barrels per day.

U.S. crude oil imports averaged 7.7 million barrels per day last week, up by 63,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 7.7 million barrels per day, 0.7% more than the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 331,000 barrels per day, and distillate fuel imports averaged 163,000 barrels per day.

Total products supplied over the last four-week period averaged 20.4 million barrels per day, up by 3.6% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 9.2 million barrels per day, down by 1.3% from the same period last year. Distillate fuel product supplied averaged 4.1 million barrels per day over the past four weeks, up by 7.0% from the same period last year. Jet fuel product supplied was up 1.0% compared with the same four-week period last year.

Why Markets Care About crude oil inventories (Crude Stocks, Crude Levels)

Crude Oil Inventories (Crude Stocks, Crude Levels) measures change in the number of barrels of crude oil held in inventory by commercial firms during the past week

It is released released weekly, 4 days after the week ends by the Energy Information Administration (EIA)

There is no consistent effect as there are both inflationary and growth implications. While this is a US indicator, it most affects the loonie due to Canada’s sizable energy sector.

Crude oil inventories (crude stocks, crude levels) is the primary gauge of supply and demand imbalances in the market, which can lead to changes in production levels and price volatility.

Resumption of Iran sanctions adds uncertainty to crude oil and gasoline price forecasts – EIA

EIA’s October 2018 Short-Term Energy Outlook (STEO) forecasts Brent crude oil spot prices, which averaged $79 per barrel (b) in September, to average $81/b in the fourth quarter of 2018, before falling to an average of $75/b in 2019. However, the effects of the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA), the re-imposition of sanctions on Iran, and the potential response from members of the Organization of the Petroleum Exporting Countries (OPEC) and other countries pose significant uncertainty to the forecast.

EIA forecasts Brent crude oil prices to average $81/b in the fourth quarter of 2018, reflecting the recent upward price movement and the possibility that crude oil prices could remain elevated while market participants assess the effects of the sanctions. EIA forecasts West Texas Intermediate (WTI) prices to increase at a slightly slower rate, leading to a widening of the Brent-WTI spread to $9/b in October. EIA forecasts the spread to narrow to $4/b by December 2019.

The May 2018 announcement that the United States would withdraw from the JCPOA and reinstate sanctions against Iran included two wind-down periods, the second of which will end November 4 and includes a number of measures that target Iran’s energy sector.

The October STEO assumes that the effects of sanctions will increase during the first few months of full implementation and that Iran’s average crude oil production (excluding condensate) in 2019 will fall by approximately 1.0 million barrels per day (b/d) from Iran’s April 2018 production level of 3.8 million b/d. This decline is similar to the drop in Iran’s crude oil production that occurred when sanctions on Iran’s Central Bank were imposed in 2012.

EIA also assumes that Iran’s condensate production will fall as a result of the new sanctions. Crude oil and condensate exports are a significant source of revenue for Iran, with net oil export revenues estimated at $55 billion in 2017. The exact effect of the sanctions will depend on the total volume of crude oil and condensate that comes off the market and the response from OPEC members and other countries.

EIA forecasts that OPEC spare production capacity will average 1.6 million b/d in 2018 and will fall to 1.3 million b/d in 2019, down from 2.1 million b/d in 2017 and lower than the 10-year (2008–2017) average of 2.3 million b/d. This decline creates a market with relatively low spare capacity at the same time Iran and Venezuela are forecast to experience production declines.

The total volumes of crude oil and condensate coming off the market will become more apparent in the months following the full implementation of sanctions in November. However, the response of other producers to compensate for lost supplies from Iran is also uncertain. Significant differences between any potential production response and the actual volumes taken off the market would likely result in increased price volatility.

The higher crude oil prices at the end of 2018 and in 2019 will likely support increased global crude oil production. EIA forecasts U.S. crude oil production to increase by 1.0 million b/d in 2019. EIA forecasts total global liquid fuels inventories to decrease by 200,000 b/d in 2018, followed by an increase of 280,000 b/d in 2019.

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