The U.S. Energy Information Administration (EIA) revealed something stunning this past week, according to a regular Rigzone commentator. Read the following recap of this past week’s oil market hits and misses to find out what the U.S. Department of Energy’s statistical arm reported that was so extraordinary.
Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?
Barani Krishnan, Senior Commodities Analyst at Investing.com: We all know of the Saudi determination to make a difference to the weekly numbers on crude released by the EIA. Yet, this week’s update by the EIA on where U.S. crude stood at in terms of imports was quite stunning. The Saudi clampdown on U.S.-destined cargoes really showed, with the 1.8-million barrel per day plunge in the EIA estimate for imports. For the record, it was the largest weekly drop in U.S. crude imports in four years. Given that OPEC will be rolling back on its production cuts from August, it’s unlikely that such low imports will become the new normal. So, it was probably an aberration but one that secured crude’s footing in $40 territory this week.
Tom Seng, Director – School of Energy Economics, Policy and Commerce, University of Tulsa’s Collins College of Business: Market analysts’ forecasts for the EIA’s Weekly Petroleum Status Report missed the mark this week as they called for a decline of only 1.3 million barrels vs. the reported 7.5 million barrels. American Petroleum Institute’s report was much closer at 8.3 million barrels. Inventories of crude, finished gasoline and distillates all remain at levels above the five-year average for this time of year. Refinery utilization at 78 percent is still a modest level for summer. Stored oil at the key Cushing, Okla., hub actually increased last week by 900,000 barrels. U.S. oil production is still holding at around 11 million barrels per day (bpd).
Rigzone: What were some market surprises?
Seng: Despite the bullish EIA report, concerns over the resurgence of the coronavirus in the U.S., as well as the OPEC+ decision to increase output, kept oil from moving beyond the four-month high this week of $41. However, West Texas Intermediate (WTI) appears to be able to maintain at least the $40 level. Increasing cases of COVID-19 in large gasoline-consuming states such as Texas, California and Florida are giving pause to what had been signs of increasing demand for fuel products. In addition to demanding make-up cuts from some members, the OPEC+ group is planning on increasing the ceiling on output by 2 million bpd next month. If the increasing cases of the coronavirus continue to increase globally and demand declines as a result, it is expected that the group will respond with new output curtailments.
Krishnan: OPEC’s plan to roll back cuts had been on the radar for a while, yet the fact they went through it despite the new wave of the COVID-19 raging across the U.S. and the world now is indeed quite surprising. According to internal OPEC research seen by Reuters, the oil exporters’ group does fear that the disciplined cuts it had carried out since May will fail to rebalance the market if the second wave of the virus undermines an economic recovery later this year. But of course, academicians and scientists don’t mean a thing in a world ruled by politicians like Donald Trump and their allies like Saudi Crown Prince Mohammed bin Salman.
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