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Here’s why U.S. oil data should rattle OPEC nerves

The latest U.S. figures on crude-oil inventories and production should rattle the nerves of major oil producers already worried about the success of OPEC-led efforts to rebalance global supply and demand.

Government data released Wednesday showed U.S. crude-oil inventories hit a record last week as imports rose and refinery activity edged lower, while domestic production hit its highest level in more than a year.

“The continued return of domestic production and continued record strength in U.S. crude inventories is taking its toll on [West Texas Intermediate crude] pricing,” Troy Vincent, oil analyst at ClipperData, told MarketWatch. “The well-supplied U.S. is even seeming to begin to limit bullish sentiment in global grades.”

The Energy Information Administration reported an increase of 8.2 million barrels in crude supplies for the week ended March 3. Total domestic inventories now stand at 528.4 million barrels—a record level based on EIA data dating back to 1982. Total stockpiles have now hit new records in each of the last four weeks.

“There was finally a small transfer of [U.S. Strategic Petroleum Reserve] barrels showing up in the data, but that came in at a relatively small 250,000 barrels, while the market still awaits the arrival of some 16 million barrels at some point in the not too distant future,” said Anthony Starkey, manager of energy analysis, at S&P Global Platts’ Platts Analytics, in a note. That’s related to the Energy Department’s previously announced sale of oil from the reserve.

The large rise in crude supplies came on the heels of sizable declines in petroleum-product inventories, as inputs to refineries to produce the products fell by 172,000 barrels a day last week to average 15.5 million barrels, according to the EIA. U.S. crude oil inputs climbed by 561,000 barrels a day in the latest week to average 8.2 million barrels.

Over the last four weeks, motor gasoline product supplied, an indication of demand, was down 6.1% from the same period a year ago to 8.8 million barrels a day.

Meanwhile, total crude production has been climbing in recent weeks. It rose 56,000 barrels in the latest week to 9.088 million barrels, according to the EIA. That’s the largest amount in more than a year—since the week ended Feb. 19, 2016.

“U.S. production grew slightly [last week], continuing its trend along with increased rig counts and a slight uptick in imports,” said John Macaluso, an analyst at Tyche Capital Advisors.

Members of the Organization of the Petroleum Exporting Countries have been concerned that rising U.S. crude output will offset OPEC-led efforts among major producers to ease a glut of global and raise oil prices.

“Market participants must begin to wonder how sustainable some of this production growth will be as recent trends, if persistent, could disrupt the narrative of a swift market rebalance” between global supply and demand, said Starkey.

Saudi Arabia’s energy minister recently stated that the Saudis have borne “most of the production cuts and requested more cooperation,” noted Macaluso.

Saudi Arabia’s Energy Minister Khalid al-Falih said at the annual CERAWeek conference this week that he was surprised by the speed at which operators have returned to U.S. shale basins, according to The Wall Street Journal. But he said that his country welcomes shale investments because more spending will be needed to meet demand in the coming years.

Still, “nearly halfway through the [six-month] OPEC production cut deal, there has been little effect on prices as U.S. production makes a comeback,” Macaluso said.
Source: MarketWatch

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