A larger than expected drawdown in US crude oil inventories has provided some strength to oil markets in early morning trading in Asia. The API reported overnight that US crude oil inventories declined by 8.16MMbbls, significantly more than the 500Mbbls drawdown the market was expecting. On the product side, API numbers showed that gasoline inventories fell by 2.46MMbbls, while middle distillates saw a build of 2.64MMbbls. The crude numbers are clearly constructive, however, we will need to see what the more widely followed EIA numbers show, which will be released later today.
The latest monthly production numbers from the EIA show that US crude oil production in April fell by 669Mbbls/d MoM to average 12.06MMbbls/d – output levels which were last seen in July 2019. Given that we saw a significant number of US producers shutting in production over May and June, this means that the downward trend in output would have continued for these months.
Finally, we are already starting to get OPEC oil production estimates for June, with numbers from the Reuters survey showing that the group’s output fell by 1.92m b/d MoM to 22.62m b/d over June. This would be the lowest production number seen from OPEC at least since 2000. The fall in output means that OPEC over-complied with the deal in June, with compliance coming in at 107%. However, this over-compliance is due to Saudi Arabia, the UAE and Kuwait cutting by additional volumes over June. These three countries had to cut by an additional 1.2m b/d just for this month. Therefore it is likely that compliance will slip again in July, unless we see a significant improvement in compliance from Iraq and Nigeria – their individual cuts in June still fell short, with compliance of 62% and 72% respectively.