Oil Inventories Are Falling Despite Rising Oil Production

Oil Inventories Are Falling Despite Rising Oil Production

With the whole of Wall Street seemingly obsessed about rising oil production in the US, and what it will mean for the global oil markets, in may be a surprise that US oil inventories saw a greater than seasonally expected withdrawal once again this week.

According to the EIA, oil inventories fell by 5.2mmbbl this week compared to the average build over the 2010 to 2014 period of 2.1mmbbl.

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A report from Deutsche Bank’s commodities analysts Michael Hsueh and Grant Sporre published yesterday, tries to discover what’s behind this larger than expected draw and see if it’s something investors should be concerned about.

Oil Inventories Are Falling Despite Rising Oil Production

What’s notable is that oil inventories have been falling faster than expected even as US oil production has risen. Average oil production for the month of May is expected to be 9,351kb/d according to Deutsche’s estimates, up from 9,314kb/d at the beginning of the month. By the end of the year, the analysts expect the US to be producing 9,978kb/d. But even with such a dramatic production increase on the cards, commercial crude oil inventory is expected to fall below the 2016 level in the first week of June.

There seem to be two main driving factors behind this trend.

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First of all, Deutsche’s analysts point out that the bulk of the improvement from last week’s inventory draw of -0.93mmbbl was a result of a large decrease in net crude oil imports. The -799kb/d decrease in the net import rate would have been responsible for a draw of -5.593mmbbl on its own. Refinery utilization dropped slightly by 1.8% to 91.5% (still at the top of the ten-year range) and the resultant drop in net refinery inputs of -418kb/d and an increase in production of +21kb/d gives a net inventory draw of -5.248mmbl.

Oil Inventories Are Falling Despite Rising Oil Production

Second, refineries are running at full pelt to bring down the US oil surplus and rather than dumping refined products in the already oversupplied US market; they are exporting. Deutsche and notes that there was a substantial increase in refined petroleum product exports from the US to Mexico and Brazil during the week in question, which offset what would have been a significant rise in product inventories. Although net petroleum product exports declined by -681kb/d week over week, the increase over the year to date remains at +730kb/ d year-on-year. The largest export increases have been to Mexico (330kb/d year-on-year) and Brazil (90kb/d year-on-year).


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