US Crude Production at Record Level

Weak Demand Drives Surge in Stockpiling

Oil prices have fallen as U.S. crude production hit record levels, driving a surge in stockpiles and threatening further soft demand.
U.S. crude production set a record high of 12.3 million barrels per day, while refining activity rates fell, according to weekly figures from the Energy Information Administration (EIA). Stockpiles in the U.S. also rose to their highest since September 2017, jumping by 9.9-million barrels to 470.6 million barrels.

OPEC deliberations

The shift in oil market dynamics saw Spot Brent crude oil futures hit US$71.91 per barrel as growing tensions outside the U.S. caused concern over trade. The expiration of sanction exemptions for Iran, ongoing unrest in Venezuela and tough production limits from the Organization of the Petroleum Exporting Countries, or OPEC, all failed to prop up prices in the face of weak global demand.
“The Venezuelan situation will likely loom large in OPEC deliberations as ministers weigh how many additional barrels may be needed to fill an expanding supply gap that is being driven by geopolitics as opposed to geology,” Canadian bank RBC Capital Markets notes.

As many of the world’s developed nations face single digit growth forecasts or stagnation the outlook for the global economy remains uncertain moving into the second quarter of the year, impacting breakbulk demand across sectors.
U.S. West Texas Intermediate crude futures were down 0.3 percent on Thursday, at US$63.41 per barrel.

Higher profits
Despite the gloomy macroeconomic picture, the outlook for oil producers was rosy as tight market conditions helped drive higher profits. This is expected to benefit breakbulk operators serving the oil and gas sector as upgrade work and maintenance begins.
Refineries in the U.S. in particular are also now heading into the spring maintenance period, stoking fears that crude oil demand will be soft and stockpiles will continue to rise, according to analysts at ANZ bank.
“With oil prices rising more than costs, industry margins increased by more than 200% in 2018,” according to analyst firm Bernstein Energy which puts industry profitability “at the highest in the last five years.”