Increase in US Oil Inventories

Increase in US Oil Inventories: The American Petroleum Institute (API) announced on Tuesday (March 2, 2021) that US crude oil inventories increased by 7.356 million barrels for the week ending on February 26.

Analysts had expected a decline in inventory by 928,000 barrels during the week.

Analysts had expected in the previous week that it would be a decline in inventory by 5.190 million barrels,
but the American Petroleum Institute (API) data came out to announce the surprise that US crude oil inventories rose by 1.026 million barrels of crude oil.

Oil Prices for This Week

Oil prices fell at the beginning of Tuesday and before the American Petroleum Institute data was released,
in view of oil market expectations that OPEC might ease its supply restrictions at a time when China’s oil import needs diminish.

In the middle of Tuesday, before the release of API data,
the benchmark Brent crude oil price fell $ 1.02 a barrel at the time (-1.60%) reaching $ 62.67 – down nearly $ 3 a barrel this week.

WTI crude fell $ 0.96 a barrel on the day (-1.58%) to $ 59.68 a barrel
– more than $ 2 a barrel during the same time last week.

After the American Petroleum Institute data was released, the WTI crude index was trading at $ 59.68,
while Brent crude was trading at $ 62.67.

Energy Production Rates

Coinciding with the rise in US crude inventories this week,
US oil production fell by 1.1 million barrels per day to 9.7 million barrels per day,
according to data from the Energy Information Administration (EIA).

The (EIA) reported

The (EIA) reported a significant drop in gasoline inventories,
which reached 9.933 million barrels in the week ending February 26,
after an increase of 66,000 barrels in the previous week.

Analysts had expected a decline of 2.300 million barrels during the week.

Distillate inventories

Distillate inventories also witnessed a dramatic decline,
amounting to 9.053 million barrels during the week,
after last week’s decline by 4.489 million barrels.

Cushing inventories also increased by 732,000 barrels.

Last week, stocks in Cushing increased by 2.783 million barrels.

Oil Market Developments over the Course of a Year

After the Coronavirus epidemic led to a crisis in the oil and energy industry in general,
due to the decline in demand as a result of forced closures and stopping movements as precautionary measures
to limit the spread of the virus.

About a year ago, the oil market began trying to achieve a general balance between production and demand.

Through the approved organizations concerned with controlling the oil market, such as OPEC,
which has greatly limited oil production to try to restore a balance between supply and demand,
and by reducing other producers to their oil production rates,
despite these attempts are still insufficient to achieve balance in the oil market, there are varying rates.

The US crude oil inventories

From the rise in US crude oil inventories and the drop in prices.

The recovery gradually began in the oil market, after OPEC raised billions of barrels of crude oil from the market and optimism about the arrival of the vaccine against the Coronavirus and began to be used in various parts of the world.

The signs of balance began as oil inventories returned to their average inventories over five years in most oil markets.

“As you look at the supply and demand equation, we’re seeing that there will be a recovery in 2021 with an even more balanced market going into 2022,” said Simonelli, the head of energy services firm Baker Hughes Co.

Despite the remarkable recovery

Despite the remarkable recovery of the oil market, the situation is still unstable and has not returned to its previous era.

Oil prices fell on Monday due to expectations that OPEC might decide this week to ease restrictions on supplies from April 1, and Chinese factories’ production rates, which fell in February to their lowest level in nine months.

In addition to the possibility that China will reduce its imports if China’s strategic oil reserves are already full and not uncommon. 

Positive expectations for the major oil companies in 2021

The world’s largest oil companies expect to be in a state of cash flow and gradual financial stability this year, as massive cuts in the past year from price crashes and production cuts have drastically reduced financial flows for many companies.

Record losses and major challenges for these companies were recorded in the past year.

However, companies’ expectations this year for the oil market are positive, especially after the rise in oil prices in recent weeks.

Currently, investment banks largely believe that a tightening oil market, easy monetary policies from governments to boost economies, and oil as a hedge against inflation for investors would lead to oil prices averaging around $60 a barrel this year, with possible spikes to $70 and even $75 before or during the summer.

The major oil companies could see a monetary rebound, according to the energy consultancy.

“The scale of the financial reset has primed the sector for a recovery in free cash flow. At an average price of US$55/bbl.

we estimate free cash flow generation could top US$140 billion in 2021 – exceeding any previous year since 2006. If oil prices reach US$70/bbl., free cash flow would be double the previous peak,” Ellacott says.

Corporates Contributions to Averting the Oil Crisis

Attempts to restore financial stability increased amid the collapse in oil prices and weak oil demand in the past year.

The largest oil companies have been forced to cut thousands of jobs

• ” BP” cut 10,000 jobs or 15% of the workforce.
• “Shell” company cut nearly 9,000 jobs.
• “Exxon” cuts 14,000 jobs, including 1900 jobs only in the United States.
• “Big Oil” has also cut its CAPEX plans and continues to pledge to restrained spending.

Many companies also accelerated their portfolio ratings, selling companies and non-core assets,
such as the liquidation by “BP” of its global petrochemical business to “INEOS” for only $ 5 billion in recent days.

“ExxonMobil” also sold most of its unoccupied assets in the central
and the northern North Sea in the United Kingdom for more than $1 billion to the private equity fund “HitecVision“.

Sales of non-core assets were expected to accelerate as companies
would look to focus their operations on the areas they identified as a factor to increase their cash flow
and investment-generating returns.

These sales are expected to contribute to reducing the debt accumulated over the past year.

If the expected record cash flow is achieved in the coming period,
it will help companies to use the surplus cash to get rid of accumulated debt and allocate
more capital to renewable energy sources and other low-carbon energy companies.

Increase in US Oil Inventories