By Catherine Ngai and Devika Krishna Kumar
NEW YORK (Reuters) - Oil traders and analysts are expecting large volumes of crude to draw from storage tanks across the United States in coming weeks, in what would be the most tangible sign of an inventory overhang reduction that has punished prices over the last two years.
A reduction would show the market is finally reversing course after years of stock builds that left a worldwide overhang of half a billion barrels of crude oil and refined products.
Supplies have remained stubbornly high for months, disappointing traders who were expecting OPEC cuts to help rebalance the market. But traders interviewed said seasonally unusual spring drawdowns in the United States, record refining runs, and big exports to Asia and Latin America as signals that sharp declines in crude stocks could be coming.
Some traders said that they expect as much as 10 million barrel per week in draws soon, although others forecasted three to four million barrels a week. U.S. crude stocks peaked at 533 million barrels in March, and were at 516 million as of last week, according to the U.S. Energy Information Administration.
Forecasts can vary depending on unexpected events like unplanned refinery or pipeline outages, but traders agreed the draws would be substantial.
"I think we'll easily get below 500 million barrels over the next six to eight weeks, or eight to 10 to be conservative," said Andrew Lebow, senior partner at Commodity Research Group in Darien, Connecticut.
On Thursday, the Organization of the Petroleum Exporting Countries, along with non-members, decided to extend cuts of around 1.8 million barrels per day for nine months to curb output. Prices fell sharply, on worries that it would not do enough to reduce supplies.
So far in 2017, inventories have remained stubbornly high. Heavy growth in U.S. shale production, along with imports, kept U.S. inventories at levels above last year, even though more opaque storage spots were starting to draw.
That may have already started to accelerate. Between April and May, U.S. crude draws averaged 3.4 million barrels every week, on track for the first decline for that period since 2008.
U.S. refiners are churning crude at near-record levels. Refinery utilization was at the highest level seasonally in two years last week even ahead of the U.S. Memorial Day holiday, the de facto start of peak gasoline demand.
Saudi Arabia's oil minister said on Thursday that the seven weeks of U.S. stock draws, along with a drop in floating storage, is "excellent news," adding that exports to the United States were dropping measurably.
The primary offsetting factor is U.S. production, which sits now at 9.3 million barrels a day, 550,000 barrels higher than a year ago, according to EIA data. [EIA/S]
"I expect any curtailment of OPEC exports will be matched by further increases in U.S. shale production, as evidenced by current data on the continued increase of drilling rigs and permits," said Josh Sherman, a partner at consulting firm Opportune LLP in Houston.
However, U.S. exports of crude and products remain strong, with some 10 million barrels of U.S. crude en route to Asia, according to shipping data and trade sources.
One crude analyst at a trading house said that he expects draws to be close to 20 million barrels a month from the Gulf Coast through the summer on "massive" levels of exports.
That could also drain inventories at the U.S. storage hub of Cushing, Oklahoma, where stocks sit at 65.6 million barrels; Standard Chartered (LON:STAN) expects that figure to fall to below 60 million by the end of the summer.
"At the pace sustained since the start of March, the crude surplus would be totally gone by end-December," Standard Chartered analysts said in a note this week.