Yahoo Finance What Supported WTI Crude Oil despite Bearish Inventories?
WTI Rises on Supply Numbers, but Shrugs Off Crude Inventory Build
US crude oil production
The EIA (U.S. Energy Information Administration) estimates that US crude oil production fell by 83,000 bpd (barrels per day) to 9.135 MMbpd (million barrels per day) in the week ending September 4 in comparison to the week ending August 28. However, these levels are still ~6.3% higher than last year’s levels of ~8.6 MMbpd.
The four-week average production of 9.260 MMbpd in the week ending September 4 was ~7.6% higher than the corresponding period last year at ~8.607 MMbpd. The four-week average fell ~0.7% 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 Hess (HES), Cimarex Energy (XEC), and Anadarko Petroleum (APC). All of these companies are part of the Vanguard Energy ETF (VDE). They account for ~4% of the fund. However, MLPs like Plains All American Pipeline Partners (PAA) stand to lose when production falls. These companies make money by transporting energy.
In the week ending September 4, production in the lower 48 states fell by 208,000 bpd. An increase in Alaskan production, which rose by 125,000 bpd, offset this decline. Nonetheless, the size of the drop in production in the lower 48 states supported the notion that the US shale-induced crude oil production boom was likely easing as a result of falling prices.
So, this was one of the main drivers behind WTI’s rally despite the bearish headline inventory news. WTI prices closed ~4% higher on Thursday, September 10. Refer to the previous part in this series for more on WTI prices.
US crude oil imports
Net US crude oil imports fell by 396,000 bpd to average 7.459 MMbpd in the week ending September 4. The decline was driven by fewer imports from Saudi Arabia, Colombia, and Nigeria. A fall in imports, meaning lower supplies, is also usually bullish for WTI crude oil prices.
Imports were 2% lower than last year’s levels during the same week. The four-week average of ~7.638 MMbpd up to the week of September 4 was ~0.5% higher than last year’s average. But, it was ~0.4% lower than the previous four-week average up to August 28.
So, the fact that both crude oil production and imports fell in the week ended September 4 seems counterintuitive to the inventory build we reported in the previous part. In fact, a drop in supplies was the major driver for a rise in WTI prices, as we mentioned above. So what caused the inventory build? We’ll discuss the answer to this in the next part of the series.
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. In comparison, 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.
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