Crude oil prices are mixed on Wednesday, moving in a narrow range, after the sharp cuts in the previous session amid weaker-than-expected declines in the US inventories.
The futures on US crude oil WTI depreciated by 0.02% to 57.61 USD per barrel, while the Brent variety recorded a price increase of 0.22% to 64.49 USD per barrel.
The US crude oil inventories fell by 1.4 million barrels to 460 million barrels in the week ending July 12, according to the data of the American Petroleum Institute. Analysts expected a much larger decline of 2.7 million barrels. The official data from the Energy Information Administration is expected later on Wednesday. If declines in inventories are confirmed, this will be the fifth consecutive weekly decline and the longest series since early 2018.
At the same time, more than half of the daily crude oil production in the Gulf of Mexico is halted on Tuesday due to Hurricane Barry, which crossed the area.
Crude oil prices have declined after the statement of the US President Donald Trump that there is big progress in the talks with Iran, indicating that tensions in the Middle East may decline. Later, however, Iran denied being inclined to negotiate its ballistic missile program, which contradicts US Secretary of State Mike Pompeo’s request and what Trump said.
US oil inventories
The American Petroleum Institute reported the US crude supplies, which fell by 1.4 million barrels for the week ended July 12, following an 8.13 million barrels draw in the previous week.
The API also reportedly showed a stockpile decline of 476,000 barrels for gasoline, but distillate inventories jumped by 6.2 million barrels.
Inventory data from the Energy Information Administration will be released Wednesday. The EIA data are expected to show crude inventories down by 4.2 million barrels last week, according to analysts polled by S&P Global Platts. They also forecast a fall of 1.5 million barrels for gasoline and an increase of 300,000 barrels for distillate supplies.
Dark forecasts for oil markets
After weeks of decline, the oil market is starting to tighten. But it is not clear how long this cycle will last. The Organization of Petroleum Exporting Countries (OPEC) has admitted last week that it may have to keep production cuts due to rising yields of major US basins.
A combination of geopolitical tensions in the Persian Gulf, interruptions in Venezuela and Iran, the expectations for the cuts in the Federal Reserve interest rates and Hurricane Barry, which crossed the Gulf of Mexico, led to a rise in oil prices over the past few days.
Standard Chartered predicts that the rally can continue.
“We think the rally is likely to continue with the Brent variety to cross the barrier of 70 USD per barrel and WTI to rise above 65 USD per barrel”, says the statement of Standard Chartered. “We expect a global deficit of 0.5 million barrels per day”, adds the statement.
Meanwhile, reports from the International Energy Agency (IEA) and OPEC suggest an even greater deficit. The IEA reported a drop of 9.5 million barrels earlier this month.
“This fourth consecutive weekly decline in US crude oil reserves shows that the US oil market is already tightening”, said Commerzbank, adding that the storms in the Gulf of Mexico and growing tensions in the Middle East are also seen as bullish factors. “The overall situation points to a further rise in oil prices in the short term”, concludes Commerzbank.
But some of these events are temporary factors that could be dispelled, especially when shale oil supplies are still growing rapidly.
In the latest OPEC report on the oil market, the group has highlighted the main challenges for oil exporters. Growth in demand may reach just 1.14 million barrels per day this year, but supply growth only from non-OPEC countries will reach 2.05 million barrels per day. Next year, supply from non-OPEC countries could jump by another 2.4 million barrels per day, with demand rising by just 1.14 million barrels per day.
In other words, OPEC+ can keep up with the cuts in production, forced to prolong the period in an attempt to prevent oil prices from collapsing.
“Infrastructure constraints – especially the capacity of the pipelines in the Permian Basin, the downward trend in the number of facilities, the lower activity of service companies and the weaker fracking – show a slowdown in 2019 growth”, says the OPEC report.
More pipelines mean more drilling, which ultimately means more supplies on the world market.
New export terminals are also part of the expansion of the US infrastructure.
“Expansion of pipelines together with new port facilities for greater exports – especially in Corpus Christi – is expected to increase from the current level of about 1 million barrels per day to about 2.9 barrels per day by the end of 2020”, says the July OPEC report, which offers a rather grim perspective for the cartel. “The demand for crude oil from OPEC in 2019 is revised down by 0.1 million barrels per day from the previous report to 30.6 million barrels a day, which is 1 million barrels per day lower than the level of 2018”, adds the report.
In other words, as US shale oil continues to grow at a rapid pace and the OPEC sees that its reduction in production is insufficient to balance the market. The cartel may take a new and even larger cut in production to balance the market in 2020.