By Barani Krishnan
Investing.com – A refiner slowdown is saving the day for oil bulls, even as U.S. crude production hits the magic 12 million barrels per day prized by the bears.
U.S. refineries ran at just 85.9% of capacity last week, data showed, as aggressive export cuts by Saudi Arabia continued to squeeze the supply of the heavier oils required for producing transportation fuels. The resulting drop in inventories, particularly of diesel and other distillates, helped New York-traded West Texas Intermediate crude and U.K. Brent trade not far from three-month highs despite declines on the day.
was down 29 cents, or 0.5%, at $56.87 per barrel by 12:13 PM ET (17:13 GMT). It hit November highs of $57.59 earlier in the session.
, the global oil benchmark, rose 18 cents, or 0.3%, at $66.90 per barrel. It reached a three-month peak of $67.38 on Wednesday.
The Energy Information Administration said in its weekly report that rose by 3.67 million barrels in the week to Feb. 15, compared with forecasts for a build of 3.08 million after the previous week’s 3.63 million-barrel increase.
fell by 1.45 million barrels, compared to expectations for a draw of 0.35 million barrels. , which include diesel, decreased by 1.52 million barrels, compared to forecasts for a decline of 1.69 million.
“A drop in inventories to both gasoline and distillates is not surprising, given refinery runs are in check and implied demand is ticking seasonally higher,” said Matthew Smith, analyst at Clipperdata, a New York-based company that tracks crude cargoes.
“Domestic production continues to go from strength to strength, hitting 12 million barrels per day, only to be outdone by rampant exports” of U.S. crude, he added.
Bloomberg reported that supertankers traveling from Asia to the Gulf of Mexico to pick up U.S. crude shipments were sailing empty because Middle East producers, led by Saudi Arabia, were withholding supplies. In normal times, those vessels would be filled with heavy, high sulfur Middle East oil for delivery to refineries in places like Houston or New Orleans.
Crude has rallied more than 20% this year, with OPEC kingpin Saudi Arabia cutting production so aggressively that it’s willing to cede market share in Asia, its most prized destination, to get to its desired target of $80 per barrel. Oil has also benefited in recent weeks from positive rhetoric around U.S.-China trade talks.
Oil bears, however, point to escalating U.S. production as a factor that could counteract OPEC efforts to rebalance the market.
U.S. crude output from seven major shale formations is expected to rise by 84,000 barrels per day in March to a record of around 8.4 million bpd, the EIA said in a separate report Tuesday.
Overall U.S. crude production has already climbed to a weekly record of 11.9 million bpd against the EIA’s year-end target of 12 million bpd. The agency has a 13 million bpd forecast for end-2020, but many industry experts expect that number to be surpassed earlier as well.
Tariq Zahir, manager at the oil-focused Tyche Capital Advisors in New York, sees another development in the favor of bears: surging inventories at the Cushing, Okla. delivery point for WTI.
“At 3 million barrels, last week’s build in Cushing was one of the largest builds we have seen in quite some time,” Zahir said, citing EIA data. “This will only grow as U.S. crude production reaches its next ramp-up and new pipelines begin carrying shale oil from the Permian basin to Cushing.”