Crude oil stocks in the United States have decreased sharply over the past couple of weeks. The latest figure released by the U.S. Energy Information Administration was lower about 7% or 27 million barrels compared to late June level. Shrinking crude oil stocks have lifted WTI futures prices to above $100 per barrel. Will it be continuing further?
The sharp decline of crude oil inventories was caused by high rates of crude oil processing. Recent crude oil processing by U.S. refineries are more than 16 million barrels per day, close to the highest ever level. The aggressive processing is supported by steady petroleum products supply that has risen on year over the past three consecutive weeks.
Petroleum products supply in the U.S. fell from previous range of 20-22 million bpd to 18-20 million bpd after the Lehman shock. Supply sunk to 18-19 million bpd during the first half of this year. However, it has rebounded to over 20 million bpd since late June.
Rising crude oil outputs boosted by non-conventional production in the U.S. mainly caused high inventory and sluggish imports over the past several years. If petroleum demand continues to be steady, increasing domestic crude oil production could be absorbed. However, faster than expected shrink of Brent premium against WTI might be a risk factor.
Although Brent premium had approached to $30 per barrel in 2011 because of increasing crude oil stocks in the US Midwest, it has lowered to 2 cents on last Friday. WTI prices may be higher than Brent again in the near term since the US benchmark crude oil's quality is better than the European benchmark.
U.S. refineries have cut crude oil imports during the past several years, since domestic crude oil were cheaper than overseas Brent based oil prices. But they are likely to resume import overseas crude oil.
Moreover, U.S. refineries may reduce running rates, because cheaper domestic crude oil have encouraged them to export petroleum products. Thus, crude oil inventory in the U.S. seems to increase again unless domestic petroleum demand recovers the pre-Lehman shock level.