WTI Moves Above $80/B Following Bullish US Data, But Then Retreats

The price of WTI moved out of the high $70s/B range to close at $80.40/B on 4 November following the release of weekly data from the US Energy Information Administration (EIA) that showed a decrease in US crude oil inventories of 4mn barrels from the previous week. Writing in Société Générale’s US Petroleum Report on 4 November, Michael Wittner, Global Head of Oil Research, said the EIA data was “bullish at first glance, mainly due to the unexpected crude draw. However, after analysis, it looks more neutral. Even after the draw, crude stocks remained very high. Total four week average demand contracted by 880,000 b/d year-on-year – no big lasting impact from this report.” Expressions of confidence in the US economy from the Federal Reserve also encouraged the upward movement for WTI, but it closed lower on 5 November after a rethink about crude demand, despite a US government report of fewer unemployment claims and indicators showing expanded business activity. Despite gains on the stock market, WTI slipped below $80/B as the dollar made a slight gain.

Commenting on the latest EIA data, Paul Horsnell, Head of Commodities Research at Barclays Capital, wrote that high crude oil stocks were beginning to subside. In the Weekly Oil Data Review , Dr Horsnell said that the US oil inventory overhang has continued to narrow, with both the crude and oil products elements of that overhang having been reduced over the past month. “The latest US weekly data shows a fall of 4mn barrels in US crude oil inventories in absolute terms, and a 5.7mn barrel fall relative to the five-year average, brought on by a further week of extremely low import flows. On a four-week average, US imports are now approaching levels not normally seen outside of hurricane disruptions. Indeed, the latest weekly reading of 8.126mn b/d is the fourth lowest in any week in the past five years – ie, even lower than many significantly hurricane-affected weeks.”

Dr Horsnell added: “There is still much further to go in the adjustment process, but it does seem to us that one seemingly convenient shorthand still being used by a wide range of commentators about the current oil market is very incorrect. That shorthand talks of seriously high crude oil inventories with incremental supplies  adding  to  an  already-groaning crude oil surplus.  The  sustained  nature  of  the  crude oil  import

compression into the US market seems to reject that view. Yes, the process is gradual, but a crude overhang that is 30mn barrels or so less than it was six months ago does represent a significant tightening, and that does seem to imply that the implementation of OPEC’s price defence has been successful in maintaining a fairly steady grip on the margin of the crude oil market.”

In its Weekly Petroleum Status Report , released on 4 November, the EIA said US commercial crude oil inventories decreased by 4.0mn barrels in the week ending 30 October. At 335.9mn barrels, crude inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 0.3mn barrels and are above the upper limit of the average range. Distillate fuel inventories decreased by 0.4mn barrels and are above the upper boundary of the average range for this time of year. Total commercial petroleum inventories decreased by 8.4mn barrels and are above the upper limit of the average range for this time of year.

US crude oil imports averaged 8.1mn b/d, down 764,000 b/d from the previous week. Over the last four weeks, crude oil imports have averaged 8.6mn b/d, 1.5mn b/d below the same four-week period last year. US crude oil refinery inputs averaged 14.0mn b/d, 233,000 b/d below the previous week’s average. Total products supplied over the last four-week period have averaged 18.8mn b/d, down 4.5% compared to the similar period last year.

Settlement Prices For Benchmark Crudes ($/B)

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