Oil Prices Rise as OPEC Cuts Output and API Reports Significant Inventory Drawdown

The Commodities Feed: Tight supplies lift oil prices

OPEC oil output dropped by around 0.9MMbbls/d in July due to production cuts from Saudi Arabia and Nigeria. Meanwhile, the American Petroleum Institute (API) reported the biggest weekly drop in oil inventory in years.

 

Energy – OPEC crude output falls

The oil market edged higher this morning with prices of both ICE Brent and NYMEX WTI gaining more than 1% day-on-day, following a bullish inventory report from the API and lower OPEC output in July. The API reported that US crude oil inventories decreased by 15.4MMbbls over the last week, significantly higher than the market expectations of around 1.4MMbbls. If confirmed by the Energy Information Administration's (EIA) report later today, this will be the largest weekly inventory drawdown since 1982. Cushing crude oil stocks are reported to have decreased by 1.8MMbbls. On the products side, API reported that gasoline and distillates inventories fell by 1.7MMbbls and 0.5MMbbls respectively, over the week ending 28 July.

Meanwhile, preliminary OPEC production numbers for July are starting to come through and it is no surprise that the group reduced output over the month as some members agreed to implement voluntary production cuts. According to a Bloomberg survey, OPEC output declined by 0.9MMbbls/d month-on-month to 27.8MMbbls/d last month, the lowest since 2020. Saudi Arabia led the decline with its production falling by 810Mbbls/d to 9.15MMbbls/d followed by Nigeria trimming the output by 130Mbbls/d to 1.26MMbbls/d. Production in Libya also declined by 50Mbbls/d to 1.1MMbbls/d as a protest briefly disrupted production at its Sharara oil field. The output cuts were partially offset by recovering production in Iraq (+70Mbbls/d), Angola (+40Mbbls/d) and the UAE (+20Mbbls/d).

On the products side, recent reports suggest that Petroleos Mexicanos shut down the nation’s largest oil-exporting terminal following an operational issue. Bloomberg reported that the FPSO Yúum K’ak’ Náab in the Gulf of Mexico was shut on Sunday because of a crude leak in one of its hose trains. Prior to this, Pemex halted its Salina Cruz terminal last month following a fire incident and unfavourable weather conditions. The export disruptions from Mexico could help increase demand for the US refined products in the domestic market in the short term.