The oil market continues to tread water. OPEC+ has made it clear that the group will stick to its cautious approach of gradually increasing supply. Consequently, the market is waiting for any developments from the US administration that may ease prices. If action is to be taken, the most likely route would be a release from the Strategic Petroleum Reserve (SPR). That said, the EIA’s recent Short Term Energy Outlook showed expectations for an improvement in the supply situation from 2022, so it is not clear whether the Biden administration will still feel that it is necessary to take action.
The EIA released its latest Drilling Productivity Report yesterday, which estimated that US shale oil production will increase by 85Mbbls/d in December to average 8.23MMbbls/d. Unsurprisingly the bulk of this expected increase will be driven by the Permian region. The report also showed that drilled but uncompleted wells (DUCs) continued to decline over October, falling by 222 to just 5,104. The number of DUCs has fallen by 3,792 since May last year and the level of DUC inventory is now at its lowest level since December 2014. US producers have relied on these DUCs to sustain production levels. However, the low levels now seen suggest that producers will have to focus more on new drilling to maintain and drive output levels higher.
The latest output data from China shows that domestic crude oil production averaged 3.87MMbbls/d in October, down from 4.06MMbbls/d in the previous month. Refinery operations over the month also increased, despite concern over the impact of power rationing. Domestic refiners processed 13.78MMbbls/d of crude oil, up from 13.70MMbbls/d in September. As a result of stronger refinery throughput, lower domestic output and reduced crude oil imports, China saw fairly large draws in crude oil inventories. Our estimates show that Chinese crude oil inventories declined by a little more than 1MMbbls/d over October.
On the calendar for today, the IEA will release its monthly oil market report, where the agency will share its outlook for the remainder of this year and 2022.
Read More: The Commodities Feed: China oil inventories fall | Snap