US oil numbers: The EIA yesterday reported a surprise crude oil build of 2.21MMbbls over the last week, which was quite different to the 1MMbbls drawdown the market was expecting, but still less than the 4.85MMbbls that the API reported the previous day. This has taken total US crude oil inventories to above 485MMbbls, which is the highest level since July 2017. Cushing inventories increased by 2.1Mmbbls over the week- taking stocks in the WTI delivery hub to almost 53MMbbls- levels last seen in December 2017. These large stock builds are weighing on prompt WTI spreads, with the Jul/Aug spread deep in carry- trading at a US$0.26/bbl discount this morning. This spread was trading around flat in early May.
The report was clearly bearish for the flat price, however the market is stronger this morning after reports of an incident involving tankers in the Gulf of Oman.
Looking ahead, we do still expect these crude builds to reverse, with the expectation that refinery run rates will pick up as we move through the summer. Over the last week, refinery utilisation rates increased by 1.4 percentage points to 93.2%- still some distance from the 97.2% achieved in late December.
US crude oil exports over the week averaged 3.12MMbbls/d, which is also the third consecutive week that oil exports have exceeded 3MMbbls/d. The general weakness that we have seen in the WTI/Brent spread is certainly helping to support these larger export volumes.
Market releases: The rest of this week will see a number of important market releases, starting with the OPEC monthly report today. The market will be watching closely to see how Saudi production performed over the month of May. The range of other estimates is roughly between 9.65MMbbls/d and a little over 10MMbbls/d for the month, which compares to 9.8MMbbls/d in April, but still well below the agreed production level of around 10.3MMbbls/d.
Then on Friday, the IEA will release its monthly oil market report, and the market will be looking closely to see if the agency makes any changes to its demand growth forecasts. In its last report, the agency revised lower its demand growth forecasts by 90Mbbls/d to 1.3MMbbls/d for 2019. This revision was concentrated in 1Q19, with little change to the agency’s outlook for the remainder of the year.