Following the Energy Information Administration (EIA) Weekly Petroleum data release with information on refined products supplied and stocks build up for crude oil

Adrian Lara, Senior Oil & Gas Analyst at GlobalData, a leading data and analytics company, offers his view on the current events:

“The withdrawal of 3.7 million barrels (mmbbls) of gasoline from the stocks last week is a good sign but does not mean the downward trend is reversed permanently. Crude oil stocks continue to build as operable capacity at refineries remains below 70% and domestic oil production and net imports of crude haven’t decreased in the same proportion. Also as storage faces a limited capacity, WTI prices have incorporated this information keeping the benchmark at historic low levels.

Crude oil production in the US will have to be reduced further and rigs will continue to be more reactive to downward price movements. For a sustained activity rebound to occur prices will need to be perceived as stabilized at a higher level of no less than US$40 per barrel. Our base case scenario estimates crude production will be reduced by approximately 1.3 million barrels per day (mmbd) during the period of early March to end of June 2020. Our low case scenario assumes a larger drop in the number of new wells, which in turn creates a steeper drop in the total 2020 crude production from May to December of 2.4 mmbd.

Now several US states have started re-activating economic activity but there is yet no certainty on the speed and sustainability of the gasoline demand rebound. Although crude prices are at significantly low levels, refineries will require also signaling via higher gasoline prices for production of gasoline to increase again at favorable processing economics. In any case even with the 1 mmbd crude production drop from early March to date, there is still an excess of crude in the US system not fully adjusted to the lower crude demand in refineries. Unless gasoline demand starts to steadily pick up crude oil storage will continue to build approaching full capacity by end of June, bringing down WTI spot prices month over month with respect to the WTI futures curve.”