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June 5, 2020

Large Drop of US Crude Production in April and May Starts Balancing the System

As mobility continues to increase, gasoline supplied to market is keeping an overall upward trend since April, reaching 7.5 million barrels per day during the week ending May 29. A mix of inventory withdrawals and lower additions in volume also supports this trend for gasoline.

By GlobalData Energy

As mobility continues to increase, gasoline supplied to market is keeping an overall upward trend since April, reaching 7.5 million barrels per day during the week ending May 29. A mix of inventory withdrawals and lower additions in volume also supports this trend for gasoline. However the story is a bit different for distillate fuel oil which has also rebounded but has seen lower product supplied during the last three weeks, standing at 2.7 million barrels per day as of last week but with a continuous build-up in inventories, now amounting to a total of 52 million barrels added since early April.

US domestic crude production has continued to decrease and the months of April and May alone reduced production in 1.5 million barrels per day. The bulk of this reduction continues to be from unconventional shale plays and in particular, the Permian Basin where reduction output for the same months amounted to 730 thousand barrels per day.

Although some operators such as EOG and Parsley Energy have announced re-activating shut-in wells in H2 2020, there are no plans for new drilling activity. For most USL48 operators oil price will need to be permanently higher than US$40 or even $50 per barrel for rigs to start coming back.

During the last five weeks, commercial crude oil stocks have been on a positive trend with either lower build-ups or withdrawals. Last week approximately 2 million barrels were retrieved and this supported WTI prices during this current week. However, the stocks from the Strategic Petroleum Reserve have been increasing and last week they added approximately 4 million barrels. The strategic reserve is acting as an alternative outlet in order to alleviate gluts in commercial storage.

Storage at Cushing, OK has seen four weeks of continuous withdrawals adding to a total extraction of 13.7 million barrels, this has lowered the operating capacity to 65% from a high of 83% in early May. At the same time the volume additions to other storage in the US has increased as crude available remains in excess of what refineries are processing, in particular storage in the USGC has seen a cumulative increase of 14 million barrels during the last three weeks.

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