WTI Up on Inventory Data; Ignores Gasoline, Distillate Build
US crude oil production
The EIA (U.S. Energy Information Administration) estimates that US crude oil production fell by 18,000 bpd (barrels per day) to 9.117 MMbpd (million barrels per day) in the week ended September 11 compared to the week ended September 4. However, these levels are still ~3.2% higher than last year’s levels of ~8.838 MMbpd.
The four-week average production of 9.202 MMbpd in the week ended September 11 was ~6.1% higher than the corresponding period last year at ~8.672 MMbpd. The four-week average fell ~0.6% week-over-week. Looking at four-week averages gives you a smoother view of what’s otherwise a volatile number week-over-week.
What does this mean?
Lower production, meaning lower supply, should be bullish for WTI (West Texas Intermediate) crude oil prices. Higher WTI prices are good for crude oil producers like Apache (APA), Cimarex Energy (XEC), and Occidental Petroleum (OXY).
All these companies are part of the Energy Select Sector SPDR ETF (XLE). They account for ~5.7% of the fund. However, MLPs like Plains All American Pipeline (PAA) stand to lose when production falls. These companies make money by transporting energy.
In the week ended September 11, production in the lower 48 states fell by 35,000 bpd. While the size of the drop was lower compared to the previous weeks, the drop supported the notion that the US shale-induced crude oil production boom was likely easing as a result of falling prices.
This was one of the drivers behind WTI’s rally apart from the bullish headline inventory news. WTI prices closed ~5.7% higher on Wednesday, September 16.
US crude oil imports
Net US crude oil imports fell by 270,000 bpd to average 7.189 MMbpd in the week ended September 11. The drop was driven mainly by fewer imports from Canada. A fall in imports, meaning lower supplies, is bullish for WTI crude oil prices.
Imports were 11% lower than last year’s levels during the same week. The four-week average of ~7.426 MMbpd up to the week ended September 11 was ~4.3% lower than last year’s average. It was ~2.7% lower than the previous four-week average up to September 4.
So the drop in imports was one of the major reasons behind lower inventories in the week ended September 11. In the next part, we’ll discuss another factor that resulted in the inventory decline.
Supply forecasts for 2015 and 2016
According to the EIA, crude oil production will average 9.2 MMbpd in 2015 and 8.8 MMbpd in 2016. The fall in 2016 is expected to be driven by weak crude oil prices. Crude oil production averaged 8.72 MMbpd in 2014. The EIA forecasts average net imports of 6.81 MMbpd in 2015 and 7.07 MMbpd in 2016.