Analysis by Dr. Nancy Yamaguchi

 

West Texas Intermediate (WTI) crude prices have slumped below $47 per barrel (/b) for the first time since July 25. WTI crude closed at $46.78/b yesterday, and it opened at $46.80/b during the current session. Prices are currently in the $46.50/b – $46.75/b range.

 

Prices seesawed this week, but the drops on Tuesday and today outweighed the rises on Monday and Wednesday. Upside movements were largely motivated by drawdowns in crude oil inventories and a supply disruption in Libya. Downside movements were caused mainly by news indicating that the global oil oversupply may last longer than predicted. Forecasts of demand growth may be revised down, and oil production is growing despite a regime of sub-$50/b crude.

 

Yesterday, the Energy Information Administration (EIA) released the official U.S. supply data for the week ended August 11. Crude inventories dropped by 8.945 million barrels (MMbbl). This was the largest inventory drawdown of the year, and it came close to the prediction of the American Petroleum Institute’s (API) forecast of 9.2 MMbbls. The EIA reported a minuscule addition of 0.022 MMbbls to gasoline inventories, and a 0.702-MMbbl addition to distillate inventories.

 

However, the EIA also reported that U.S. crude production hit a new milestone by surpassing the 9.5 million barrels per day (MMbpd) mark last week. The EIA forecasts that output from major shale plays will hit a new record next month, led by gains in the Permian Basin, where production has risen steadily over the past two years. The EIA forecasts that total U.S. crude production will average 9.3 MMbpd this calendar year, rising to an average of 9.9 MMbpd in 2018.

 

The EIA weekly data show that U.S. crude production averaged approximately 9,033 thousand barrels per day (kbpd) during the first quarter of 2017. Production rose to 9,301 kbpd during the second quarter, and it rose again to an average of 9,432 kbpd during the first six months of the third quarter. The 2017 year-to-date average is now 9,216 kbpd, based on the weekly data.

 

The EIA also reported a significant drop in apparent demand. Gasoline demand dropped by 275 kbpd, and diesel demand dropped by 288 kbpd on average during the week ended August 11.

 

WTI crude opened at $46.80/b this session, a drop of 92 cents from yesterday’s opening. Currently this morning, WTI prices are $46.61/b, down by 19 cents since today’s opening.