Oil Choppy ahead of OPEC Meeting, EIA Inventory Report

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange moved mixed in early trade Wednesday as investors await the release of two weeks' worth of U.S. inventory data from the Energy Information Administration and ahead of the technical committee meeting among OPEC+ delegates with the focus on production capabilities from Middle East producers United Arab Emirates and Saudi Arabia.

The American Petroleum Institute reported late Tuesday commercial crude oil stocks in the United States dropped 3.799 million bbl during the week-ending June 24, more than four times an expected 800,000 bbl drawdown. Stocks at the Cushing, Oklahoma hub, the New York Mercantile Exchange delivery point for the West Texas Intermediate futures contract, declined 650,000 bbl. The data also show gasoline stocks posted a 2.852 million bbl build, missing calls for a draw of 800,000 bbl. Distillate inventories, meanwhile, rose 2.613 million bbl, well above calls for a build of 200,000 bbl.

The closely watched report from the EIA scheduled for release at 10:30 AM ET will include data for the weeks ended June 17 and June 24 after hardware failures on two of the government's servers prevented publication of the report last week.

Also on Wednesday, oil traders will monitor a meeting by the Joint Technical Committee meeting among OPEC+ members which will be followed by the ministerial meeting on Thursday.

Limited OPEC+ spare capacity returned to focus this week after French President Emmanuel Macron at the Group of Seven summit this week relayed to U.S. President Joe Biden that Saudi Arabia and UAE don't have as much production capacity as they claim. UAE Energy Minister Suhail Faraj Al Mazroui told Macron UAE and Saudi Arabia can only add about 150,000 bpd of oil over the next six months.

Aramco, Saudi Arabia's state-owned oil giant, previously said it can sustainably produce 12 million bpd and increase it to a maximum of 13 million bpd over the course of the next few years, which compares with production of 10.424 million bpd in May. The bulk of that expansion is expected to come from three key oilfields known as Zuluf, Marjan and Berri, slated to come into service in 2025 and 2026. But the reality is Saudi Arabia has never produced above 11 million bpd for a prolonged period of time, with the maximum output of 11.5 million bpd reached in April 2020 at the height of Saudi market share war with Russia. On Thursday, Saudi production capacity will receive its first test after OPEC+ will greenlight the final monthly output increase in a long series that will set Saudi's capacity at nearly 11 million bpd for August.

Additional Saudi oil production is needed in the current tight market which is seeing output disruptions globally. Ecuador, which normally produces 520,000 bpd, has seen output cut by nearly half due to spreading demonstrations. According to the country's oil minister, Juan Carlos Bermeo, all of Ecuador's crude output will be shut in over the next couple of days if protests continue.

In Libya, a country that has been torn by eight years of the brutal civil war, three major oil ports in the Gulf of Sitre will be shut until the end of this week due to ongoing violence in the oil fields. Libya's crude production has roughly halved since mid-April to 600,000 bpd, according to Bloomberg estimates.

Near 7:45 AM ET, NYMEX August WTI futures climbed $1.25 to $113.01 bbl and ICE Brent crude for August delivery rallied to $119 bbl, up $1.04. NYMEX July RBOB contract declined 3.16 cents to $3.9035 gallon and NYMEX July ULSD futures fell 5.09 cents to $4.1485 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges