Oil prices dip as U.S. fuel demand disappoints; Crude output at 3-year high
Investing.com -- A six million barrel weekly draw in U.S. crude stockpiles no longer seems to do it for the bulls.
The most-active October contract on the New York Mercantile Exchange settled Wednesday’s trade down 75 cents, or almost 1%, at $78.92 per barrel — below the key $80 mark. WTI hit a one-month low at $77.62 earlier. The U.S. crude benchmark is down some 2.3% week-to-date, after shedding an identical percentage last week following a seven-week rally that left WTI up nearly 20%.
Brent settled down 82 cents, or almost 1%, at $83.21 per barrel. The global crude benchmark was down nearly 2% on the week, extending last week’s 3% drop after a seven-week rally that gave oil bulls an 18% return.
Oil prices dipped for a third day in a row despite the Energy Information Administration, or EIA, saying in its Weekly Petroleum Status Report that crude stockpiles fell by 6.135M barrels during the week ended Aug. 18.
The crude stockpile drop came on top of the 5.960M-barrel decline reported by the EIA for inventories in the prior week to Aug. 11. Industry analysts tracked by Investing.com had forecast a decline of just 2.850M barrels for the just-ended week.
Upstaging the crude inventory decline were U.S. gasoline inventories, which registered a surprise build last week against expectations for a drop. Stockpiles of distillates, meanwhile, jumped four times more than forecast, the EIA said.
On the gasoline inventory front, the EIA reported a build of 1.467M barrels, after a slide of 0.261M barrels last week. Analysts had forecast a decline of 0.888M for last week. Automotive fuel gasoline is the No. 1 U.S. fuel product.
With distillate stockpiles, there was a climb of 0.945M barrels versus the prior week’s gain of 0.296M. Analysts had predicted a build of just 0.218M for last week. Distillates are refined into heating oil, diesel for trucks, buses, trains and ships and fuel for jets.
The EIA’s reports on oil and fuel inventories have turned volatile lately as global stockpiles see shifts from Saudi and Russian maneuvers to slash exports amid slower buying from China.
U.S. crude output at 3-year high
Also, quite unexpected was the EIA’s higher estimate for U.S. crude output for a third week running.
Crude output was projected at 12.8M barrels per day during the week to Aug. 18, making it the agency’s highest such estimate since the record 13.1M barrels produced daily before the coronavirus outbreak in March 2020.
Over the past three weeks, the EIA has constantly raised production estimates for oil by 100,000 barrels each week under a new reporting methodology that accounts for oil potentially flowing from active oil wells compared with those that are drilled but uncompleted — the latter referred to as DUCs.
“Earlier this year the EIA revised the number of drilled but uncompleted wells in the top U.S. shale basin, adding several years’ worth of unreported DUCs,” said Phil Flynn, an energy analyst at Chicago broker Price Futures Group.
Flynn said the revisions imply that drilling-rig productivity has been higher than past estimates despite the U.S. oil rig count having fallen by more than 15% this year.
The EIA “believes active drilling rigs were about 10% more productive in 2021–2022 than previously estimated”, Flynn added.
The revisions to the EIA’s reports also come as global oil supply sees shifts from Saudi and Russian efforts to slash production and exports amid slower buying by top oil importer China which is facing an economic crunch.
U.S. export escalation
Higher drilling efficiency aside, U.S. oil producers also seem to be pushing for volume now. There has been a sheer escalation in exports from the world’s largest producer of the commodity, ostensibly to feed demand coming from markets that could be underserved by the Saudi-Russian cuts.
The EIA report for the week ended August 18 also showed a staggering 10.544M barrels per day of exports of both crude and fuel oils from a total crude production of 12.8M. That means just 2.256M barrels of crude per day were for domestic consumption, with the balance 82% going towards exports.
“It looks like U.S. energy companies are really stepping up to the plate to ostensibly make up for some of the vacuum in oil supplies resulting from the Saudi-Russian cuts,” said John Kilduff, partner at New York energy hedge fund Again Capital.
Saudi Arabia, which has been producing oil at well below its capacity for more than a year now, announced an additional million barrels per day reduction in July that it said will carry through to September at least. Cargo tracking data by Kpler also suggests that Russian exports may fall by as much as one million barrels per day this month as the Kremlin seeks to tighten production.
(Additional reporting by Peter Nurse and Ambar Warrick)
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