Crude Up Again Due to Surprise Inventory Decline, But Traders Ignore All Time High Output Build

by Ship & Bunker News Team
Wednesday March 21, 2018

Data released Wednesday by the U.S. Energy Information Administration confirming a substantial inventory decline predictably resulted in a  rise in crude prices, with West Texas Intermediate settling up $1.63, or 2.6 percent, to $65.17 per barrel.

Brent rose $1.97, or 2.9 percent, to $69.39 per barrel.

The EIA corroborated findings released Tuesday by the American Petroleum Institute of a large inventory drop, specifically a surprise 2.6 million barrel draw in the week of March 16, compared to analytical expectations of a 2.5 million barrel build.

Although not quite matching the Institute's calculation of 2.74 million barrels, the EIA's findings come close to being the largest decline since January.

The EIA also reported that refinery crude runs rose 410,000 barrels per day (bpd) and refinery utilization rates jumped 1.7 percentage points to 91.7 percent of total capacity, causing Matt Smith, director of commodity research at ClipperData, to remark, “Refinery runs continue to exude strength: they are nearly a million barrels per day higher than year-ago levels, led by Gulf Coast refining activity knocking on the door of 9 million barrels per day.”

As always, sentiment was the main driver of traders, and the ever-reliable Organization of the Petroleum Exporting Countries (OPEC) contributed to Wednesday's feel-good vibe by announcing that a group of two dozen oil producers had cut production far beyond agreed-upon levels in February.

Not even the EIA's data showing that weekly crude output had hit an all-time high was enough to offset the upward price trajectory: "So far, the market is sort of ignoring the increase in production," said Jim Ritterbusch, president of Ritterbusch and Associates, adding, "We now have production above 10.4 million bpd and it's going to keep rising; and the market is eventually going to have to reckon with that."

But attempting to impose logic on crude trading habits is not without its challenges, and it's anyone's guess what kind of impact news that a large area of Texas oil patch is sinking will have on the market in coming days, if any.

A geophysical team from Southern Methodist University, Dallas, has found alarming rates of new ground movement extending far beyond two giant sinkholes near Wink, Texas, and that various locations in large portions of four Texas counties are also sinking and uplifting.

The area studied is 4,000 square miles, and one area of movement was as much as 40 inches over 2.5 years, causing Jin-Woo Kim, a research scientist in the SMU Department of Earth Sciences, to remark, "This region of Texas has been punctured like a pin cushion with oil wells and injection wells since the 1940s and our findings associate that activity with ground movement.

"We're fairly certain that when we look further, and we are, that we'll find there's ground movement even beyond that."

Earlier this week, Matt Stanley, a fuel broker at Freight Investor Services International, worried that the discrepancy between current WTI and Brent prices is a huge incentive for producers to export even more U.S. crude into the international market, thus compromising OPEC's cutback efforts as well as grabbing more of its market share.