May 06, 2020

Crude Prices Might Gain Momentum from Additional US Crude Production Cuts

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US Crude production is now 11.9 MMBPD, as reported today by the EIA, that is a decline of 1.2 MMBPD in just 7 weeks - a 9% reduction. Today's production level is at the same range that it was in February 2019. In other words, the US has lost over a year of additional investments and drilling activity in the crude sector, due to the COVID-19 impact on prices.

An additional bullish signal was the fact that Refinery Capacity utilization increased to 70.5% (from 69.6 % last week), the third week in a row showing increases, which bodes well for the Downstream sector:

  • On one hand, higher utilization rates show the convenience to continue processing crude, because of its low market price relative to products
  • But on the other hand, refinery runs are inextricably linked to an outlook of consumer demand, and this might be the most positive signal: the Downstream sector expects to see a gasoline and diesel demand recovery

Crude stocks reportedly increased 1% over the last week (+4.59 MMB), while Gasoline Stocks declined by the same proportion (-1%, or -3.15 MMB).

Crude Production Chart

US Refining Utilization Rate Chart

 


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