The supply glut is coming to a pause, Well, the API (American Petroleum Institute) has reported yesterday evening that inventories had reduced by 3.1 million barrel week-on-week in the week to 11 September. The market had been anticipating an inventory build, as refineries scale back their processing during the usual autumn maintenance period, with the result that crude oil stocks generally rise.
WTI and Brent is beginning trading today witha a good note, trading quite higher than yesterday, brent at just shy of $48 per barrel. The price rise is largely due to the derivatives contract rollover, as oil is trading in a pronounced contango at the short end of the forward curve. However, the slight increase in price of the WTI October contract, which is still being traded, shows that a surprising decline in US crude oil stocks has lent additional support.
Finally crude should get support fundamentally: Excessive weight should never be attached to a weekly fluctuation, however, as it can often be explained by somewhat erratic imports. Nonetheless, the now significant decline in US production should help reduce the oversupply in the US and thus "brighten" the fundamental situation. In its Drilling Productivity Report, which it published last week, the US Energy Information Administration (EIA) had predicted a further month-on-month fall in shale oil production by 80,000 barrels per day in October.
If this turns out to be the case, the key shale plays in October would already be producing 350,000 barrels per day - or 6.3% - less than at their peak in April. In our opinion, the falling US production will drive a lasting price recovery in the medium term. The official EIA inventory report will paint a clearer picture of the situation at the current edge in the US when it is published shortly. Let's watch today's inventory levels closely and decide our trade directions.
