Strong Draw in Crude Inventories Boosts Oil Prices

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The Energy Information Administration once again helped to lift oil market spirits this week by reporting another hefty decline in US commercial crude oil inventories for the week ending July 21.

A day after the American Petroleum Institute estimated inventories had declined by a generous 10.23 million barrels—the largest draw of the year according to the API—the EIA said crude oil inventories diminished by 7.2 million barrels, to 483.4 million barrels. The authority reported hefty inventory draws in the last three weeks as well.

Gasoline inventories were also down last week, by 1 million barrels. This compares with a 4.4-million-barrel draw a week earlier. Gasoline production averaged 10.4 million barrels daily, up from 10.1 million bpd the week before, when refineries ran at 17.1 million bpd. Last week, runs averaged 17.3 million barrels daily.

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The week so far has been quite good for oil prices. On Monday, at the energy ministers’ meeting in St. Petersburg, Saudi Arabia pledged to cut its crude oil exports to 6.6 million barrels daily starting from next month, and Nigeria said it was willing to cap its output at 1.8 million bpd.

At the same time, Halliburton said that the rate of rig additions in the US shale patch is slowing down as sub-US$50 oil prices weigh on many energy companies. In evidence of what Halliburton said, Anadarko became the first shale player to announce a cut in its 2017 capex program of US$300 million because of the stubbornly low prices.

The combination of these factors pushed Brent crude back up above US$50 for the first time in two months, with WTI trading above US$48 a barrel. Headwinds, however, remain—chief among them the likelihood that some OPEC members will slack off in their compliance with the cut deal after Ecuador last week announced it was quitting it altogether.

Iraq, for example, said it plans to boost production to 5 million bpd by the end of the year, which is certainly incompatible with adhering to its quota. Libya is also ramping up its production.

Meanwhile, oil in floating storage in the North Sea hit another 2017 high this week, at 12 million barrels, according to energy data provider Kpler – one more sign that there is still quite a lot to do before the glut goes away.

By Irina Slav for Oilprice.com

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