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With Oil Production Flat, US Inventories Drop; OPEC-Plus to Ramp Up Output – Natural Gas Intelligence

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U.S. crude production held even for a third consecutive week as global supply concerns intensified amid sanctions against Russia’s energy complex, the U.S. Energy Information Administration (EIA) said Thursday.
EIA said oil inventories for the week ended May 27, excluding those in the Strategic Petroleum Reserve, dropped by 5.1 million bbl from the previous week. At 414.7 million bbl, stocks are 15% below the five-year average, according to the agency’s latest Weekly Petroleum Status Report.
However, the consortium of oil-rich countries known as OPEC-plus said on the same day it would boost output this summer. The group agreed to increase production in July and August by 648,000 b/d, advancing a previously planned increase for September. It would mark a jump from the roughly 430,000 b/d increase it has targeted for June.
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While the Saudi Arabia-led cartel did not specify a reason, analysts said the obvious catalyst was the Europe Union’s (EU) decision this week to ban up to 90% of Russian oil imports by the end of the year. The United States and other countries had previously banned imports of Russian oil in protest of the war.
The International Energy Agency (IEA) estimated 3.0 million b/d of Russian oil could be shut in because of sanctions. Countries across the continent will inevitably look to the United States and OPEC-plus to offset embargos of Kremlin-backed crude, IEA researchers have said.
Analysts at ClearView Energy Partners LLC noted that President Biden plans to visit Saudi Arabia this month to press the Kingdom for production increases. Biden is under pressure to address soaring crude prices and, by extension, lofty gasoline costs for drivers. U.S. producers have increased production this year, but only gradually, as they face investor demands to divert capital to renewable fuel projects.
The price for international benchmark Brent crude topped $117/bbl in intraday trading Thursday. That was up more than 50% from the start of 2022. Gasoline prices hit record levels in May, according to AAA. The national average per gallon was $4.71 on Thursday, up more than $1.70 from a year earlier.
The ClearView team said Saudi Arabia and its OPEC allies may have pressed for the oil output increase to appease the United States. “But we would suggest, more fundamentally, that OPEC may be looking out for its own interests: high oil prices could bring demand destruction and push import-reliant economies into recession. And supply tightness seems likely to persist as Western leaders seek to enduringly — in the words of the White House — ‘degrade’ Russia’s energy production capacity through sanctions and export controls.”
Speaking at an investor conference Wednesday, JPMorgan Chase & Co. CEO Jamie Dimon said oil prices could surge above $150/bbl amid ongoing sanctions. This could tilt the global economy into recession, he said, according to a transcript.
“You’d better brace yourself,” Dimon said. “That hurricane is right out there, down the road, coming our way.”
He said substantially increased production, including in the United States, may be the only way to curb price inflation and prevent a downturn.
Indeed, on its own, the OPEC-plus bump in production likely will not prove enough to meaningfully offset sanction-driven shocks to global supplies, said BMO Capital Markets analyst Randy Ollenberger. What’s more, he noted, OPEC-plus has this year struggled to meet its targeted increases because of political strife and aging infrastructure in member countries.
“We believe crude oil prices could remain elevated as the commodity market grapples with product shortages,” Ollenberger said.
U.S. oil production totaled 11.9 million b/d last week, a peak level for the year but flat with the prior two weeks. Output remains more than 1 million b/d below the pre-pandemic highs of early 2020 as producers try to strike a balance between the investor demands and global calls for more oil.
Domestic demand, meanwhile, has been choppy through the spring as consumers navigate a new era of price pain. Still, consumption of petroleum products is up year/year.
Demand for the May 27 week declined 1% week/week. But total products supplied over the last four-week period averaged 19.5 million b/d, up 3% from the comparable span last year, EIA said.
Globally, OPEC forecast oil demand in 2022 would increase by 3.4 million b/d.
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Related topics: Oil demand Oil Production oil storage Ukraine-Russia Crisis

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In a continuation of the extreme price swings seen the past three and a half months, natural gas futures wiped out early gains of more than 35 cents Thursday after the latest government inventory data showed looser balances. July Nymex gas futures ultimately settled 21.1 cents lower on the day at $8.485/MMBtu. August futures tumbled…
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