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Crude Oil Price Steady as Gas, Diesel Stockpiles Soar

Paul Ausick

The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Thursday morning, showing that U.S. commercial crude inventories decreased by 7.4 million barrels last week, maintaining a total U.S. commercial crude inventory of 424.5 million barrels. The commercial crude inventory remained in the middle of the average range for this time of year.

Wednesday evening the American Petroleum Institute (API) reported that crude inventories fell by about 5.0 million barrels in the week ending December 29. Gasoline inventories rose by 1.8 million barrels and distillate stockpiles rose by 4.3 million barrels. For the same period, analysts polled by S&P Global Platts had consensus estimates for a decrease of 5.7 million barrels in crude inventories, a rise of about 1.3 million barrels in gasoline and an increase of 2.0 million barrels in distillate stockpiles.

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Total gasoline inventories increased by 4.8 million barrels last week, according to the EIA, and remain above the upper limit of the five-year average range. U.S. refineries produced about 9.7 million barrels of gasoline a day last week, down by about 500,000 barrels a day compared to the prior week. Total motor gasoline supplied (the agency's proxy for demand) averaged about 9.2 million barrels a day for the past four weeks, up about 2.1% compared with the same period a year ago.

Before the EIA report, benchmark West Texas Intermediate (WTI) crude for February delivery traded up about 0.3% at around $61.77 a barrel, and it moved down to around $61.68 after the report's release before returning to $91.78 minutes later. WTI settled at $61.63 on Wednesday and opened at $61.93 Thursday morning. The 52-week range on February futures is $43.76 to $62.21, and the high was posted this morning.

Since mid-December WTI crude oil has added about $5 a barrel and settled on Wednesday at its highest price in three years at $61.63, and it posted a 52-week high at $62.21 early this morning. How long can the party go on?

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The higher pricing is almost entirely due to the withdrawal of about 1.8 million barrels a day in global crude oil supplies resulting from the OPEC-initiated production cuts. The cartel expects that the crude market to balance this summer and run at a small deficit in the second half of 2018.

How likely is that? Reuters oil analyst John Kemp comments:

History suggests that OPEC will gamble on tightening the market too much, with prices overshooting on the upside, rather than risk not tightening it enough and prices fall back. …

OPEC has not declared a price target for 2018, though some senior officials from member countries have briefed they want to see a Brent price floor of $60, which implies an annual average well above this. …

In practice, if OPEC comes anywhere near achieving its objective of draining stocks down to the five-year average level, prices will likely end up well above $70, which will probably be welcomed by most OPEC members.

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But the more prices increase, especially with Brent prices near $70, and WTI prices above $60, the more likely U.S. shale drilling and production rates will accelerate, which will tend to frustrate the objective of lowering stocks.

Week over week, U.S. crude oil exports rose by 265,000 barrels a day last week and U.S. production increased by 28,000 barrels a day to 9.78 million. Exports averaged 1.475 million barrels a day last week and have a cumulative daily average for the year of 979,000 barrels a day, a 102% increase over the year-ago export total.

Distillate inventories increased by a whopping 8.9 million barrels last week and remain in the middle of the average range for this time of year. Distillate product supplied averaged about 4.1 million barrels a day for the past four weeks, up by 5.8% compared with the same period last year. Distillate production averaged 5.6 million barrels a day last week, up about 100,000 barrels a day compared to the prior week's production.

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For the past week, crude imports averaged about 8 million barrels a day, down by 27,000 barrels a day compared with the previous week. Refineries were running at 96.7% of capacity, with daily input averaging 17.6 million barrels a day, about 210,000 barrels a day more than the previous week's average. Exports of refined products fell by 1.12 million barrels a day last week to 4.47 million.

According to AAA, the current national average pump price per gallon of regular gasoline is $2.486, up 2.6 cents from $2.462 a week ago and down one cent per gallon compared with the month-ago price. Last year at this time, a gallon of regular gasoline cost $2.359 on average in the United States.

Here is a look at how share prices for two blue-chip stocks and two exchange traded funds reacted to this latest report.

Exxon Mobil Corp. (XOM) traded up less than  0.1%, at $86.76 in a 52-week range of $76.05 to $90.30. Over the past 12 months, Exxon stock has traded down about 3.5%.

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Chevron Corp. (CVX) traded down about 0.1%, at $127.27 in a 52-week range of $102.55 to $128.94. As of last night's close, Chevron shares are trading up about 8% over the past year.

The United States Oil ETF (USO) traded up about 0.2%, at $12.37 in a 52-week range of $8.65 to $12.38. The high was posted today.

The VanEck Vectors Oil Services ETF (OIH) traded up about 0.9%, at $27.45 in a 52-week range of $21.70 to $35.20.

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