Crude Oil Inventory Falls, Price Nears $50 a Barrel

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The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories decreased by 3 million barrels last week, maintaining a total U.S. commercial crude inventory of 499.7 million barrels. The commercial crude inventory remains at historically high levels for this time of year according to the EIA.

Tuesday evening the American Petroleum Institute (API) reported that crude inventories fell by 7.6 million barrels in the week ending September 30. API also reported gasoline supplies increased by 2.9 million barrels and distillate inventories saw a drop of 1.3 million barrels. For the same period, analysts had estimated an increase of 2.56 million barrels in crude inventories, along with a rise of 702,000 barrels in gasoline supplies and a decrease of 700,000 barrels of distillates.

Total gasoline inventories rose by 200,000 barrels last week, according to the EIA, and remain above the upper limit of the five-year average range. Total motor gasoline supplied (the agency’s measure of consumption) averaged over 9.3 million barrels a day for the past four weeks, up by 3.2% compared with the same period a year ago.

While the surprise OPEC agreement last week to freeze production at some as-yet unspecified level gave crude oil prices a boost, as always with agreements on OPEC production, the devil lurks in the details. Given the numbers that have been revealed thus far, production could drop by somewhere between 250,000 and 750,000 barrels to around 32.5 million barrels a day. Whose ox gets gored? Almost certainly Saudi Arabia’s.

Meanwhile, in the U.S. shale industry, analysts at RBN Energy posted a story Wednesday morning on capital spending (capex) and production guidance at 15 diversified energy companies. The short version: capex is estimated to fall by 53% compared with actual spending in 2014, while production is expected to decrease by just 5% in the same period.

RBN Energy expects four of these companies to increase production in 2016: Cimarex Energy Co. (NYSE: XEC), up 1%; Newfield Exploration Co. (NYSE: NFX), up 5%; WPX Energy Inc. (NYSE: WPX), up 12%; and Noble Energy Inc. (NYSE: NBL), up 17%.

As for 2017 capex and production, RBN Energy says, “At current forward curve prices, we anticipate larger investment budgets and stronger production growth for producers that are focusing on the major unconventional plays.”

U.S. shale producers essentially have become the world’s swing producers, a role long played by Saudi Arabia. Investment in and production from U.S. shale plays could have a lot more influence on global prices than anyone currently anticipates.

Before the EIA report, benchmark West Texas Intermediate (WTI) crude for November delivery traded up about 2% at around $49.60 a barrel, and it rose to around $45.80 shortly after the report’s release. WTI crude settled at $48.69 on Tuesday. The 52-week range on November futures is $34.10 to $54.01.

Distillate inventories decreased by 2.4 million barrels last week but remain above the upper limit of the average range for this time of year. Distillate product supplied averaged 3.6 million barrels a day over the past four weeks, down by 8.9% compared with the same period last year. Distillate production averaged over 4.7 million barrels a day last week, roughly flat compared with the prior week’s production.

For the past week, crude imports averaged over 7.7 million barrels a day, down by 125,000 barrels a day compared with the previous week. Refineries were running at 88.3% of capacity, with daily input averaging over 16 million barrels, about 302,000 barrels a day less than the previous week’s average. Refinery runs are dropping as maintenance and turnaround to winter-grade fuel production begin. Refiners also may be letting inventories run down a little from record highs, as indicated by continuing decreases in imports.

According to AAA, the current national average pump price per gallon of regular gasoline is $2.233, up from $2.208 a week ago and up about three cents compared with the month-ago price. Last year at this time, a gallon of regular gasoline cost $2.290 on average in the United States.

Here is a look at how share prices for two blue-chip stocks and two exchange traded funds reacted to this latest report.

Exxon Mobil Corp. (NYSE: XOM) traded up about 0.7%, at $86.81 in a 52-week range of $71.55 to $95.55. Over the past 12 months, Exxon stock has traded up more than 12% and is down more than 16% since August 2014, as of Tuesday’s close.

Chevron Corp. (NYSE: CVX) traded up about 0.8%, at $102.12 in a 52-week range of $75.33 to $107.58. As of the most recent close, Chevron shares have added more than 20% over the past 12 months and trade down more than 24% since August 2014.

The United States Oil ETF (NYSEMKT: USO) traded up around 2.6%, at $11.38 in a 52-week range of $7.67 to $16.20.

The VanEck Vectors Oil Services ETF (NYSEMKT: OIH) traded up about 3.2% to $29.69, in a 52-week range of $20.46 to $32.78.