Saudi stockpiles reach an 18-month low in March

Saudi Arabia’s oil production remained unchanged in the final month of the first quarter, according to reports from OPEC, but as demand for the kingdom’s oil continues to grow, OPEC’s largest producer is increasingly depleting its stockpiles. The kingdom’s crude oil stockpiles fell to 296.7 MMBO in March, down 3% from 305.6 MMBO in February, reports Bloomberg. The current level of oil stockpiles in Saudi Arabia represents an 18-month low.

Saudi Arabia led the change in OPEC’s policy to continue producing in November 2014 despite global oversupply, and has since increased its production to more than 10 MMBOPD. While the oil price downturn did not affect the kingdom as much as some of OPEC’s less wealthy members, Saudi Arabia was forced to draw down its sovereign reserves in order to pay for its expansive social programs.

In February, Saudi Arabia, along with Venezuela, Qatar, and non-OPEC producer Russia, agreed to freeze production at January levels. The move helped to bolster oil prices from thirteen-year lows, but a wider deal between OPEC and non-OPEC producers was not reached last month when Iran refused to join the freeze before increasing production to 4 MMBOPD.

“The Saudis were pushing for a freeze deal since February so they needed to rely on stocks to meet any rise in customers’ demands at home and abroad while keeping their output flat,” Mohamed Ramady, an independent analyst and former economics professor at King Fahd University of Petroleum and Minerals, said. “The Saudis also wanted to give some rest to fields after 12 months of production above 10 million barrels a day.”

Saudi Arabia’s own refineries produced 2.85 MMBOPD of various products in March, an all-time high, and up from 2.84 MMBOPD in February. Gasoline production increased to 569 MBOPD in March, the highest since December 2013 when Saudi refineries produced at a record of 613 MBOPD.

U.S. stocks see a gain this week

U.S. stockpiles saw a 1.3 MMBO build for the week ended May 13, 2016, bringing total U.S. stockpiles to 541.3 MMBO. The average economist estimate for last week’s crude oil stockpile movement showed observes anticipated a draw of more than 3.1 MMBO, but despite the surprise inventory build, WTI has remained relatively strong.

Strong demand for refined products last week helped to support oil prices today. Stockpiles for products like gasoline and diesel fell more than crude inventories rose last week, with demand of more than 20 MMBOPD, the highest weekly level since January, according to the EIA.

“We did have a hefty drawdown in gasoline and distillates,” Peter Cardillo, chief market economist at First Standard Financial, told The Wall Street Journal. “It’s going to support higher prices in the short term.…I think $50 is around the corner.”

Fires in Canada and pipeline outages in Nigeria are the latest in a string of unplanned production outages around the globe, along with lower production in the U.S., that are helping ease the global oversupply of crude oil.

As prices climb closer to $50 per barrel, more operators may consider putting rigs back to work to boost production. The move could remove some of the steam from the oil price rally, and cap gains crude has seen over the first quarter of 2016.

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