Oil Prices End Lower Despite U.S. Inventory Decline

The Wall Street Journal, April 17, 2019

  • Oil prices ended slightly lower Wednesday despite a decline in U.S. oil inventories, as investors exercised caution ahead of a Trump administration decision regarding a waivers program on Iranian oil sanctions.
  • West Texas Intermediate futures, the U.S. oil benchmark ended 0.5% lower at $63.76 a barrel on the New York Mercantile Exchange. Prices have been in a tight range since reaching a five-month high of $64.61 a barrel last Wednesday.
  • Brent crude, the global oil benchmark, ended 0.1% lower at $71.62 a barrel on London’s Intercontinental Exchange.


Inventories: The Energy Information Administration on Wednesday said U.S. crude-oil inventories declined by 1.4 million barrels last week, ending a three-week streak of bearish increases, while U.S. oil production bullishly slipped to 12.1 million barrels a day from last week’s record 12.2 million barrels a day.

Bob Yawger, director of the futures division at Mizuho Securities USA, said the market’s muted response to the bullish decline in U.S. crude inventories was the result of an even-more-bullish report on inventories late Tuesday from industry group American Petroleum Institute, which showed a 3.1-million-barrel decline. “The whole story here is today’s EIA decline was not as big as API’s,” he said. “API had a significant bullish tone, and the EIA report didn’t match it.”

Iran: More broadly, oil prices were also being held in check by investor trepidation before the U.S. decides how to proceed regarding its sanctions against Iran that prohibit other countries from buying Iranian crude oil. The Trump administration granted temporary waivers for the sanctions in November to eight countries, including China, Japan and India, allowing them to keep buying Iran oil. But after the U.S. decision last week to designate Iran’s Islamic Revolutionary Guard Corps a foreign terrorist organization, analysts speculate President Trump may choose to yank all waivers, which could push prices higher.

“Everyone is aware of the fact the Trump administration can come out any day now and say they’ve extended waivers or they cut waivers, so there’s a lot of caution there,” Mr. Yawger said. “And nobody knows the timing. You can go to the bathroom and when you return oil is $2-a-barrel higher or $2-a-barrel lower.”

Secretary of State Mike Pompeo has said it is too early to say how the designation would affect the waivers. A decision could come around May 1.

China: Prices found some support from Chinese data that points toward an improving economy that could bode well for the global economy and overall oil demand. “A flurry of Chinese data proved supportive in the end, with industrial-production and retail-sales data for March as well as the GDP print for Q1-19 all mildly beating expectations,” said analysts at JBC Energy in a research note.


Permian Pipes: Infrastructure building in the booming, oil-rich Permian Basin began with large, takeaway pipelines to quickly and cheaply haul oil to Gulf Coast refineries and shipping ports, and RBN Energy said there is now an increased focus is on so-called gathering pipelines – smaller, extensive lines that run from lease acreages themselves, and reduce the need for trucks.

“These hydra-like systems, with a number of small-diameter-pipe ‘tentacles’ feeding larger-bore pipes downstream, provide the most cost-effective means of transporting crude oil from the lease to storage and to takeaway pipelines,” said RBN’s Housley Carr in a research report, noting that Concho Resources ‘ joint project with midstream firm Frontier Energy Services, a 100-mile system called the Beta Crude Connector, is an example.