Commodity »

Crude Faces Headwinds As Strong Production Gains Strength

David Becker
Share on StockTwits
Published on

Strong crude oil production has pushed oil prices lower despite recent draws in crude oil stocks. The turning point in maintenance season has come quickly and refiners have started to draw on crude oil as the build stocks in gasoline and distillates. The last two weeks have seen substantial draws in crude oil, but this week’s draw was offset by large builds in both heating oil and gasoline.

Production in the US continues to rise at record rates and is putting pressure on WTI crude oil. According to the Department of Energy in their short term energy outlook released on December 10, 2013, estimated U.S. crude oil production averaged 8.0 million barrels per day (bbl/d) in November. This number was the highest monthly level since November 1988.

This past week’s draw in crude oil by refiners was the second consecutive large draw in crude oil. U.S. commercial crude oil inventories declined by 10.6 million barrels from the previous week. At 375.2 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year, but are beginning to show a trajectory that could put crude oil inventories back into the 5-year historic range.

Total motor gasoline inventories increased by 6.7 million barrels last week, while distillate fuel inventories increased by 4.5 million barrels. The builds in products reflect the higher capacity utilization of refiners. Although the US is allowed to export products such as gasoline and distillates, there is a law against exporting crude oil outside of Canada and Mexico. This makes refining an attractive business given the high levels of demand for distillates.

Crude oil prices are hovering near the bottom end of the current range and could break through support levels. Momentum is negative with the MACD printing in the red.

Share on StockTwits