EIA crude oil inventories surprise, US oil short - term pullback but overall remains strong

On Wednesday (July 21) in New York, at 22:30 Beijing time, us EIA data showed that us commercial crude oil inventories excluding the strategic reserve were unexpectedly higher than expected in the week ended July 16, refined refining inventories were lower than expected, gasoline inventories fell less than expected. U.S. crude oil prices edged down $0.30 in the short term after the EIA data, with prices still maintaining a strong rally throughout the day.

EIA crude inventories unexpectedly rose

U.S. crude oil inventories for the week ended July 16 actually rose by 2.107 million barrels, compared with a forecast decline of 4.5 million barrels.

In addition, U.S. EIA gasoline inventories for the week ended July 16 actually fell 121,000 b/d, vs. 1.05 million b/d, vs. 1.038 million b/d last; U.S. EIA refined inventories for the week ended July 16 actually reported a decline of 1.349 million b/d, versus an increase of 650,000 b/d, versus an increase of 3.657 million b/d last.

U.S. crude oil exports fell by 1.562 million BPD to 2.463 million BPD last week, the EIA report showed. Domestic crude oil production fell by 100,000 barrels a day last week to 11.4 million barrels a day. The four-week average supply of U.S. crude oil products was 20.583m b/d, up 15% a year earlier.

The EIA report showed that imports of commercial crude oil excluding strategic reserves were 7.097 million BPD last week, up 876,000 BPD the previous week. Commercial crude inventories, excluding the strategic reserve, rose 2.107 million barrels, 0.5 percent, to 439.7 million barrels.

U.S. net crude oil imports rose to their highest level since December 2020 in the week ended July 16, the EIA report showed. U.S. commercial crude oil imports excluding strategic reserves in the week ended July 16 were the highest since the week ended July 3, 2020. U.S. crude oil exports in the week to July 16 were the lowest since the week of May 7, 2021. U.S. EIA crude oil inventories for the week ending July 16 recorded the largest increase since the week ending March 12, 2021.

OPEC+ reached an agreement to increase production, putting downward pressure on oil prices

The Organisation of the Petroleum Exporting Countries its Allies have overcome internal divisions that threatened their grip on the crude oil market with a deal to pump more oil into the resurgent global economy.

An unusually public dispute that tested unity was resolved by a classic compromise in which Saudi Arabia partially met the UAE's demand for a higher production cap.

After two weeks of turmoil, Sunday's deal to increase supplies by 400,000 barrels per day (BPD) allowed OPEC+ to regain control of the market.

Crude prices in New York surged to a six-year high in early July after talks to increase production broke down, before falling back toward $70 a barrel as traders weighed the possibility of a break-up of the alliance.

The risk of an OPEC+ collapse has receded -- at least for now. The energy ministers of Riyadh ABU Dhabi put aside the spat that led to the collapse of OPEC+ talks earlier this month to show off their continuing friendship commitment to the alliance.

The Saudi Energy minister said consensus building was an art that the deal was proof of the strong ties among member states showed that OPEC+ was here to stay.

OPEC+ will begin pumping more oil next month until its 5.8 million b/d production suspension is fully restored. The agreement was reached because the UAE, along with several other countries such as Russia Saudi Arabia, will receive a higher benchmark for production cuts starting in May 2022.

The UAE's production benchmark will rise to 3.5 million BPD, below the 3.8 million BPD it demanded when OPEC+ failed to reach an agreement earlier this month, but above the previous 3.17 million BPD. Saudi Arabia Russia each raised their benchmarks by 500,000 b/d to 11.5 million b/d.

'The agreement is likely to keep oil prices lower in the short term as investors pare positions as the supply outlook improves,' said Andrew Haida, senior commodity strategist at ANZ Bank. 'Ultimately, the market remains relatively tight, so the sell-off should be short-lived.'

While the OPEC+ agreement spans more than a year covers millions of barrels of production, it is still a flexible arrangement. OPEC+ will continue to meet monthly, including to assess the market in December. The Saudi energy minister said the arrangements could be adjusted if necessary. The next meeting is on September 1st.

Goldman said the agreement supported its constructive view on oil, but that short-term prices could be "volatile" because of concerns about the Delta variant. The bank said in a report that the proposed increase in supply was "modest" that the market would remain short of supply.

Analysts believe that after the agreement, there is still a supply gap, the pressure on oil prices is difficult to ease

The OPEC+ agreement to increase production after two weeks of haggling sent oil prices tumbling. But the decline may last.

While OPEC+ will continue to gradually resume production suspended during the Novel Coronavirus pandemic, market watchers warn that the increase will be large enough to fill the looming supply shortfall. As U.S. Chinese demand picks up, OPEC+ 's cautious stance could trigger a new wave of oil price increases that could fuel global inflation.

'Adding 400,000 barrels a day to the market will prove negligible,' said Ed Morse, head of commodities research at Citigroup. 'Overall, this is a very tight market.'

Despite the resurgence of COVID-19 in some parts of the world, demand has now increased significantly crude oil prices could climb further by the end of the summer, Morse said.

Vandana Hari, founder of Singapore-based Vanda Insights, said the deal proves that OPEC+ is only intact, but is expected to gradually reduce production cuts in a controlled prudent manner to avoid the slight risk of pushing the market into oversupply. Breaking quotas could remain a thorn in the alliance's side, she added, especially as members start to feel "restraint fatigue" as the market demands more oil.

Goldman Sachs Group Analysts, including Damien Courvalin, said in a note that the deal would support their constructive view on oil, while warning that prices could fluctuate in the near term due to concerns about delta strains. The planned modest increase in production will keep the market in the red.

Will Sungchil Yun, senior commodities analyst at VI Investment in Seoul, believes attention will now turn to demand, now that supply-side uncertainty has disappeared. He added that the agreement was based on the assumption that the outbreak would subside next year, but that the rapidly spreading Delta strain could continue to affect oil markets for some time.

Daniel Hynes, senior commodity strategist at ANZ bank, said the deal could lead to some short-term weakness as investors unwind positions on the prospect of increased supply. He added that the market was still relatively tight the sell-off should be short-lived.

Continued growth in oil demand means producers can continue to dominate the market

Global inventories probably fell by 3 million barrels a day last month. The United Arab Emirates, Saudi Arabia, Russia Kuwait are the only OPEC+ members likely to increase production significantly. The U.S. won't lift sanctions on Iran until September at the earliest, allowing it to export more oil. Iran has managed to increase production by 800,000 to 900,000 b/d, with another 1.8 million b/d to be added over time.

The Organisation of the Petroleum Exporting Countries has defused an internal dispute over a production quota conflict between Saudi Arabia the United Arab Emirates complied with calls to increase supplies. With more oil on the horizon, Asian buyers are waiting for cheaper crude. 'The OPEC+ deal could go a long way toward filling the large supply gap we expect in the second half of this year,' the IEA said.

In early July, a rare spat between the United Arab Emirates Saudi Arabia at the regular monthly ministerial meeting of major oil producers stalled an agreement to increase production. The two sides are at odds over whether the benchmark used to calculate the UAE's production quota needs to be adjusted if the current agreement to cut production is extended April 2022 to the end of 2022. International oil prices fluctuated at high levels due to disagreements among oil producers, raising concerns about a renewed price war.

At a ministerial meeting on July 18, major oil producers finally agreed to increase production aim to fully end production cuts by September 2022. To bridge the gap, the parties agreed to set new production quotas May 2022 for countries including the UNITED Arab Emirates, Saudi Arabia, Russia, Kuwait Iraq. The Uae's base production will increase to 3.5 million b/d the current 3.168 million b/d, while Saudi Arabia Russia will both increase to 11.5 million b/d 11 million b/d.

On the demand side, global oil demand is still in the process of rapid recovery. The COMMUNIQUE noted that with the acceleration of COVID-19 vaccination, continued economic recovery in most parts of the world, improving oil market fundamentals, clear signs of growth in oil demand, declining oil stocks in OECD countries.

The global oil market could see a shortfall of 1.5 million barrels a day in the second half of this year, according to the International Energy Agency, despite rising supply producers. Continuing demand growth means there will still be a supply gap, supporting expectations of higher prices.

Giovanni Stonovo, a commodities analyst at UBS, said the continued growth in oil demand meant that producers could continue to dominate the market, that the agreement to increase production might ease the market's tightness. He said he did expect upward pressure on oil prices to ease in the near term.

BHP Billiton, the world's largest miner, is considering an exit the oil gas business

BHP Billiton, one of the world's largest mining companies, is considering selling its oil gas business to speed its exit fossil fuels in a deal that could be worth tens of billions of dollars, according to people familiar with the matter.

The company is reviewing its oil business considering a number of options, including a sale, sources said. The business is expected to earn more than $2 billion this year could fetch more than $15 billion if sold.

BHP is trying to follow in the footsteps of rival Anglo American, which pulled out of its thermal coal business under pressure investors. While the company has long made its oil business one of the pillars of its strategy believes it can make money it for at least a decade, it wants to avoid getting caught in an asset that is increasingly difficult to sell as the world tries to wean itself off fossil fuels.

BHP's deliberations are at an early stage no final decision has been made, people familiar with the matter said. A BHP spokesman declined to comment.

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Source: International Oil network