Increasing U.S. Crude Oil Supply Helps Keep Prices Down

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Researched by Industrial Info Resources (Sugar Land, Texas)--The price of West Texas Intermediate (WTI) crude oil for September delivery hovered around the $50-per-barrel mark yesterday as data from the U.S. Energy Information Administration (EIA) showed an increase in U.S. crude oil supplies of 2.5 million barrels to 463.9 million barrels for the week ending July 17. On Tuesday, the American Petroleum Institute reported a similar estimated weekly increase of 2.3 million barrels.

The increase in U.S. oil reserves comes despite the fact that U.S. refineries operated at 95.5% capacity for the week, the highest utilization rate this year, processing about 16.9 million barrels per day (BBL/d) of crude. Despite a reported increase in net gasoline production, which rose from 9.66 million BBL/d for the week ending July 10 to 10.11 million BBL/d last week, gasoline supplies were down about 1.7 million barrels, as summer driving season and lower prices helps keep domestic gasoline consumption relatively strong. Distillate inventories, which include diesel and fuel oil, rose by about 200,000 for the week.

The increased crude oil supply in the U.S. comes despite a much lower number of drilling rigs and well completions in the U.S., as increased efficiencies and new technologies are substantially increasing the output obtained from each well. Companies such as Statoil ASA (Stavanger, Norway) and Anadarko Petroleum Corporation (NYSE:APC) (The Woodlands, Texas) are crediting new technologies with increasing production despite a slowdown in new drilling. For additional information, see July 16, 2015, article - Efficiency Gains Keep Oil & Gas Production Rising in the Face of Lower Prices.

The rise in domestic crude oil stocks contributes to an overall glut in the world market for which the outcome remains uncertain. Earlier this month, the Organization of Petroleum Exporting Countries (OPEC) and Paris-based International Energy Agency (IEA) released differing forecasts regarding the expected movement in global oil demand. OPEC forecast that global crude oil demand will grow by 1.34 million BBL/d next year, helping soak up increased production from member countries such as Saudi Arabia and Iraq, which together increased monthly production in June by more than 530,000 BBL/d from the previous month.

Conversely, the IEA said that crude oil demand "will continue to ease throughout the rest of this year and into next as temporary support fades," slowing by about 1.2 million BBL/d in 2016 from 1.4 million this year. In addition, the possible re-emergence of an Iranian crude oil export market could further increase supplies in 2016.

The EIA has forecast a fourth month of lower U.S. shale oil production, which it says will decline by 91,000 BBL/d in August to 5.4 million BBL/d, according to the agency's most recent Drilling Productivity Report. However, overall U.S. production remains robust, and only time will tell how these declines will affect global oil prices over the long term.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and ten international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.