for Crude oil inventories
The spread between benchmarks Brent and WTI has widened recently, a reflection of a sharp increase in U.S. shale production this year at a time when OPEC is cutting back.
Are Recent U.S. Crude Draws the Result of a Normal Seasonal Decline or a Delayed Effect of OPEC’s cut?
Crude stock draws are not out of the ordinary for this time of the year, but it appears that some OPEC members restricting supply has begun to bite the U.S. market.
The recent increase in floating storage is an ominous sign that the OPEC cuts may not balance the market, and it also poses a threat to the ambitious drilling campaigns by U.S. shale companies that are still recovering from the price crash to below $30 in early 2016.
If refinery utilization remains near current levels, there is the danger of more inventory increases and downward pressure on product prices.
If fundamentals weaken and oil market sentiment shifts, a sharp price correction is likely once investors liquidate their long positions.
The sharp increase in gasoline inventories since the end of last year has raised some concerns, helping deflate the bullish sentiment that has permeated the oil market over the past few months.
OPEC's past cuts were successful in tightening the global oil market and lifting prices, but the agreement last week in Algiers may not be sufficient to rebalance fundamentals, particularly since U.S. shale is poised to rebound.
In order for prices to break out of the current range of $40-$50, there needs to be a sharp drawdown in crude stocks, but so far that hasn't happened.