Crude oil prices dropped today after the Energy Information Administration reported what can only be described as a colossal crude oil inventory build of 21.6 million barrels for the week to February 26.
This was in stark contrast to the estimated 7.356-million-barrel build reported by the American Petroleum Institute and analyst expectations of an inventory draw of 1.85 million barrels. For the previous week, the EIA had estimated a crude oil inventory build of 1.3 million barrels.
The market yesterday shrugged off the API estimate of a crude inventory build thanks to a massive draw in gasoline stocks, at 9.93 million barrels and a similar-size decline in middle distillate stocks. Both draws resulted from refinery outages caused by the Texas Freeze that hit the state in February, hurting its oil and gas production and refining operations.
The EIA reported a 13.6-million-barrel decline in gasoline stocks for the last week of February, and an average production rate of 8.3 million bpd. This compared with virtually unchanged gasoline stocks—at 257.1 million barrels—for the third week of the month and a production rate of 7.7 million bpd.
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For middle distillates, the EIA reported an inventory decline of 9.7 million barrels for the last week of February, versus a drop of 5 million barrels for the previous week. Distillate production averaged 2.9 million bpd last week, compared with 3.6 million bpd a week earlier.
Oil prices have been extra-volatile this week ahead of the OPEC+ meeting tomorrow, as internal divisions persist and deepen, and traders suspect the voices for production increases may gain the upper hand.
India has added fuel to the debate by calling on OPEC+ to drop the “artificial” cuts in production and let prices fall.
“Artificial cuts to keep the price going up is not something we support,” a Ministry of Petroleum and Natural Gas told media earlier this week.
Yet Middle Eastern oil producers desperately need higher oil prices to reduce deepening deficits and return to growth. Even so, they may have to consent to some form of production increase and turn the fight for prices into a fight for market share.
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By Irina Slav for Oilprice.com
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Still, what will impact on crude oil prices is OPEC+’s decision tomorrow whether to extend the current production cuts or to ease them and not EIA’s claim of a 21.6 million barrels oil inventory build. In a nutshell, the global oil market and prices listen to OPEC+ and not to the EIA.
OPEC+ will take the right decision to ensure that a demand-supply balance exists in the market. This tips the balance in favour of a decision to keep the current cuts unchanged probably until the end of April.
On the other hand, India is behaving like a selfish and spoilt child in calling on OPEC+ to drop the “artificial” cuts in production and let prices fall. India’s motivation is to reduce its crude oil import bill and thus preventing a worsening of its budget deficit having become the world’s third largest consumer of oil after the United States and China.
However, OPEC+’s motivation is diametrically opposed to India’s. OPEC+ members with the exception of Russia are dependent on the oil export revenues to the tune of 85%-90%. Oil exports are their livelihood.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Plus ethanol now as well at a million barrels per day produced.
No power outage upon the Northern Plains, Indiana or Illinois so refinery runs look rock solid there.