US oil market shows the right trend at a slow pace

GlobalData Energy 4 September 2020 (Last Updated September 4th, 2020 14:23)

US crude oil stocks endure a decreasing trend reaching six continuous weeks. Still the reported withdrawal of commercial inventories of 9.3 million barrels for the week ending August 28 was much larger than the previous five weeks and supported by lower crude oil production after the disruptions caused by Hurricane Laura.

US oil market shows the right trend at a slow pace

US crude oil stocks endure a decreasing trend reaching six continuous weeks. Still the reported withdrawal of commercial inventories of 9.3 million barrels for the week ending August 28 was much larger than the previous five weeks and supported by lower crude oil production after the disruptions caused by Hurricane Laura.

Indeed crude oil production reduced by 1.1. million barrels per day (mmbd) mainly due Hurricane Laura related shut-ins of output in the US Gulf of Mexico (GoM). At the strongest period of the hurricane, almost half of the offshore platforms were evacuated leading to approximately 84% or 1.6 mmbd loss in crude production. At the moment it is estimated that 20% of the offshore production remains shut-in.

Hurricane Laura also affected some refineries in the US Gulf Coast and approximately 2.3 mmbd of refining capacity was shut down. This also supported the draw in stocks of refined products, in particular gasoline with a withdrawal of 4.3 million barrels leading to four straight weeks of gasoline stock reductions.

The refined products supplied to market fell during the last week with 2.6 mmbd of less volume delivered with respect to the week ending August 21. In particular for gasoline, the overall trend since it started recovering in early April has not really been able to exceed the 9 mmbd level. By comparison, during the same period in 2019, gasoline supplied to market was 9.4 mmbd.

WTI price has remained above US$40 per barrel since early July and surpassed US$43 per barrel during the last week of August, but has not been able to breach the US$45 per barrel mark. The lower refinery utilization during the last week of August also put downward pressure to the benchmark.

Gasoline experienced a drop of 370 mbd on a weekly basis. Although there is a clear upward trend for gasoline consumption since April 3, its demand has remained below 9 mmbd. At 3.9 mmbd distillate demand remains more or less close to levels before the COVID-19 lockdown restrictions. The current value is also close to the distillate demand during August of 2019 or around 4 mmbd. By contrast, kerosene-type jet fuel continues to be negatively impacted by the reduced flight activity. Its current demand of 940 mbd is almost 50% less than the August 2019 volume of 1,870 mbd.

Since July 10 WTI price has stayed above the US$40 per barrel level. Lower volume additions to stocks and a general trend of withdrawals since early June have also supported the price upward trend. Cuts in domestic production are behind the price rebound from the levels below US$20 per barrel seen in April and May of the current year.  Weekly signals of weaker or stronger demand for transportation fuels, in particular gasoline, are now a main driver affecting WTI price. Indeed last week’s lower supplied volumes of gasoline and lower crude demand from refiners negatively impacted WTI. A level below US$45 is still considered challenging for many US producers, especially for companies operating in shale plays across the country.