The latest report from the Energy Information Administration showed that US crude oil inventories last week fell back to their lowest levels since 2015. In the week ending August 31st, commercial US crude stocks shrank by 4.3 million barrels to 401.49 million barrels.
Trade Concerns Weigh
Despite the draw in inventories, oil prices moved lower over the week as growing concerns over the future of demand linked to escalating trade wars put pressure on prices. The prospect of a fresh round of US tariffs on Chinese goods to the tune of $200 billion, with the potential for Chinese retaliation, has curbed investor enthusiasm. Added to this was the news this week that Trump is reportedly considering taking trade action against Japan, another trading superpower.
While Trump’s moves can be seen as bravado ahead of the upcoming midterm elections, an increasing number of players are beginning to question what the real outcome for the US economy will be if the President continues along this aggressively protectionist path.
Gasoline & Distillate Stocks Soar
Away from global trade concerns, oil prices have also come under pressure from a rally in refined product stocks with gasoline stocks rising by 1.8 million barrels and distillate stocks rising by 3.1 million barrels. Both gasoline and heating oil futures have been at the core of energy markets recently due to an early rally in the week due to storm Gordon. However, gains were conceded as the storm passed without any real consequence for the US energy sector.
Disappointingly for crude bulls, the US driving season was also a rather lackluster one this year, failing to provide the usual boost demand that is typically seen over the summer holiday period.
Iran Sanctions To Lift Prices?
The outlook for crude oil prices is not so bleak. The imposition of fresh US sanctions against Iran from November is set to see crude oil supplies shrink which should provide firm upward price pressure. Furthermore, in its latest report, the Organisation of Petroleum Exporting Countries (OPEC) said on Wednesday that is projects global demand to break above 100 million barrels a day for the first time this year. There is also upside risk to this figure due to the ongoing crisis in Venezuela where the oil production has halved in the last two years to just over 1 million barrels per day.
On the domestic supply front, US crude oil production last week remained at record highs of 11 million barrels per day where it has roughly been since July. However, these levels are expected to come down over the coming months as we see a deceleration in demand linked to the ongoing US / China trade war.
While oil prices have been rallying firmly this year to print levels not seen since 2011. After making those highs, action has looked a little toppy and we have seen a lot of consolidation and correction. Indeed, the bearish outside bar price is printing this week has the potential to act as a left shoulder to the larger head and shoulder pattern that has formed over the last few months putting focus on a potential break of the local rising trend line (in green) and a run down to test the longer-term rising trend line (in red).