Crude stocks down 25.6 MMBO in last eight weeks
One of OPEC’s primary goals in passing production cuts has been to decrease global inventories, but this objective has been mostly elusive in early 2017.
Inventories in the U.S. in the beginning months of 2017 did not respond to the reduced OPEC output. Instead, commercial crude inventories in the U.S. in February and March actually exceeded the record highs of 2016, signaling that the OPEC cuts were not being felt at all.
But finally, U.S. inventories have begun dropping.
After peaking at 535.5 MMBO in storage on March 31, inventories have been steadily decreasing. The EIA’s weekly storage report shows 509.9 MMBO in storage last week, more than 27 MMBO below 2016 levels. Inventories have dropped for eight straight weeks, adding to a 25.6 MMBO reduction in crude stocks.
This decrease has exceeded analyst expectations, as the analyst consensus predicted a total draw of 15.1 MMBO.
Source: EnerCom Analytics
Decline happening ahead of schedule
This inventory draw is not only larger than expected, but is occurring earlier than usual. The five-year average of crude stocks actually adds significant volumes in April, and does not begin summer decline until mid-May. The situation was similar last year, when sustained declines began in late May. Inventory draws beginning in April, therefore, suggests that reduced international supply is starting to have an effect.
But, draws or not, inventories are still at historic highs. The 509.9 MMBO currently in storage is still 71.6 MMBO, or 16%, above the five year average. The current draws will have to continue for several more months before levels return to historic norms.
OPEC cuts extended, disappoint traders
OPEC extended its oil output cuts at current levels last week, adding another nine months of reduced output. This will continue to keep about 1.2 MMBOPD off the markets, which OPEC members hope will be enough to balance the oil market. Energy traders have not been entirely convinced, however.
WTI prices dropped about 5% on the OPEC announcement, as investors had hoped for larger cuts to ensure storage rebalancing. The most recent inventory report has been viewed as a positive, though, as WTI prices rose by about 1.3% immediately following the report release.
Source: Bloomberg
