U.S. crude market supply excess already reduced, reports suggest
An excess of supply that built up in the U.S. oil market due to the coronavirus crisis has already been suppressed, according to a new report by GlobalData.
Severe production cuts occurring April through June took about two million barrels per day out of the equation, and increased demand is bringing down oversupply, according to GlobalData senior oil and gas analyst Adrian Lara.
"With less crude available, the system is more sensitive to changes in imported volumes of crude and the pace of demand for refined products. Furthermore, storage at Cushing is no longer at risk of saturating its operating capacity, so WTI price appears more normally linked to changes in the stocks and increases in refining utilization capacity," Lara said.
Crude imports to the U.S. decreased in mid-March and onward, but Lara said that trend has turned around, with imports increasing since mid-May. Refiners starting to increase their crude intake, combined with no domestic production increase, will result in large withdrawals from crude storage.
"While US demand for gasoline continues on an overall increasing trend, there are concerns about a potential slowdown in mobility due to measures controlling ongoing COVID-19 outbreaks across the US. However, it is still too soon to know whether these setbacks will reverse gasoline demand," Lara said. "As for distillate and kerosene-jet fuel, these products still remain depressed in their demand."
Domestic crude production has shown an overall decline week to week, but Lara said the largest cuts are likely completed and production through the rest of 2020 is likely to remain relatively flat.
"Since May, crude oil inventories have also kept their decreasing trend through lower injections and even a few large withdrawals. This has supported the clear upward trend of WTI price during the last two and a half months," Lara said.