Tuesday January 3, 2017 - 10:55:38 GMT
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Oil Prices Consolidate Near $50 Per Barrel Following Inventory Reports
Oil prices rebounded from their lows after attempting to move below $50 per barrel following both the API and DOE reports on oil inventories. It appears that there is concern that OPEC is producing at record rates ahead of their self-imposed mandate to cut production. On November 30, OPEC announced that it would reduce output by 1.5 million barrels per day, to rebalance the oil market and send prices higher.
The reason behind the move is budget oriented. Saudi Arabia which controls approximately 40% of the oil production in the world, needs prices to be higher to meet their current budget. There are many in Saudi Arabia that do not work while the government funds their living. If prices are not able to recapture the $60 per barrel level, Saudi Arabia could face internal issues. OPEC will make the effort, but the question is how much will they cheat.
There were multiple inventory reports over the past two days. The American Petroleum Institute reported a larger than expected draw in inventories that was offset by a very large build at Cushing. According to the API crude oil inventories declined by 2.21 million barrels compared to the 1.37-million-barrel decline expected. Additionally, crude oil stocks rose by 4 million barrels at Cushing compared to the 2.87 expected. WTI is priced at Cushing Oklahoma, which means that an increase in stock piles will potentially drive down prices at that location.
U.S. crude oil refinery inputs averaged over 16.4 million barrels per day during the week ending December 2, 2016, 134,000 barrels per day more than the previous week’s average. Refineries operated at 90.4% of their operable capacity last week. Gasoline production decreased last week, averaging over 9. 9 million barrels per day. Distillate fuel production decreased last week, averaging 5.1 million barrels per day. U.S. crude oil imports averaged 8.3 million barrels per day last week, up by 755,000 barrels per day from the previous week.
The Energy Information Administration reported that U.S. crude oil inventories decreased by 2.4 million barrels from the previous week. Expectations were for a 1.3-million-barrel draw. Total gasoline inventories increased by 3.4 million barrels last week and distillate fuel inventories increased by 2.5 million barrels last week. Total commercial petroleum inventories increased by 1.4 million barrels last week.
Demand has edged lower but distillate demand remains strong. Total product demand over the last four-week period averaged about 19.6 million barrels per day, down by 1.0% from the same period last year. Over the last four weeks, gasoline demand averaged about 9.1 million barrels per day, down by 1.2% from the same period last year. Distillate demand supplied averaged 3.9 million barrels per day over the last four weeks, up by 5. 7% from the same period last year. Jet fuel demand is up 3.6% compared to the same four-week period last year.
Oil trading will be volatile as inventory levels remain high for the balance of 2016, but should start to moderate based on a reduction in production during the latter part of the Q1.
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