US crude inventories fell for the first time in four weeks, as demand for gasoline and other petroleum-based fuels rebounded and imports and production declined.
The U.S. Energy Information Administration (EIA) said on Wednesday that oil inventories for the week ended Oct. 15, excluding strategic oil reserves, were down 400,000 barrels from the previous week. At 426.5 million barrels, inventories are 6% below the five-year average, the EIA said in its weekly State of Oil report.
The October 15 period marked the end of a three-week trend in which inventories climbed nearly 13 million barrels. Shares rose 6.1 million barrels during the week ended Oct. 8, following a rally in crude prices that pushed US benchmark West Texas Intermediate (WTI) prices lower. above $ 80 / bbl and to highs in seven years. Soaring prices have translated into higher fuel costs for consumers and businesses, which has dampened demand.
WTI futures topped $ 83 in intraday trading on Wednesday – and rose more than 60% on the year – although the sticker shock appears to have faded. Consumption of petroleum products resumed an upward climb last week, after a summer of robust demand. Consumption of petroleum products last week increased 10% week / week to 21.8 million bpd.
Notably, demand increased 20% from the comparable week last year, when coronavirus outbreaks reduced travel and consumption, and 3% from 2019, before the pandemic.
Rystad Energy analyst Louise Dickson said oil prices are high due to strong global demand as economic activity in countries around the world increases following coronavirus vaccination campaigns. Inflation is expected to inject volatility into oil markets, but demand through the end of 2021 and early next year, overall, is expected to prove strong, she said.
The trajectory of crude demand, Dickson said, shows the “important role that fossil fuels still have in the power mix.”
Total U.S. oil demand over the last four-week period averaged 20.9 million barrels per day, up 14% from the same period last year. During this period, motor gasoline consumption averaged 9.4 million bpd, up 10%, while demand for distilled fuel averaged 4.1 million b / d, up 8%. Jet fuel consumption jumped 50% to 1.5 million bpd.
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U.S. production, meanwhile, fell last week and remained well below pre-pandemic levels, the EIA said. Production averaged 11.3 million bpd, down 100,000 bpd from the previous week. It was 1.8 million bpd below the peak of 2020, reached before the pandemic in early March of the same year.
Oil imports averaged 5.8 million bpd last week, down 169,000 bpd from the previous week.
Although near-term demand is strong, most US producers remain “hesitant to increase” production, Dickson said, given the potential for winter virus outbreaks and a greater incentive to invest in fuels. renewable.
This falls to the Organization of the Petroleum Exporting Countries (OPEC) and its Russian-led allies, aka OPEC-plus.
Can OPEC-Plus balance the global market?
Earlier this month, the cartel approved another production increase for November, pursuing a plan that is tentatively expected to extend until 2022 to balance supply and growing demand.
Following earlier increases, the cartel agreed in July to increase production by 400,000 bpd per month. He launched it in August with the intention of continuing at that rate until he rolls back all cuts made amid the pandemic in 2020. The cartel has cut production by 9.7 million b / j last year. Nearly 6 million barrels a day went offline when Saudi Arabia-led OPEC and its partners met in early October.
OPEC said this month it expects global oil consumption to increase by 5.8 million barrels per day in 2021 and an additional 4.2 million barrels per day next year. , to reach an average of around 100 million barrels per day in 2022. That would put demand at the same level as in 2019. levels, before the pandemic.
Besides the United States, large countries like China are looking for more oil to fuel the growing demand for travel fuels and to use crude instead of natural gas. OPEC researchers expect higher levels of switch from gas to oil in power generation this winter after soaring natural gas prices this year. The supply of natural gas is precariously low in Europe and could also run out in Asia if the coming winter turns out to be severe.
Against this backdrop, Raymond James analyst John Freeman said OPEC-plus on its own may not be enough to assuage supply issues or the upward pressure on oil prices.
“With US suppliers continuing to maintain capital discipline,” he said, “this higher price cycle has a lot more resistance than those that preceded it.”