Following strong sales over the prior week, crude oil prices were higher this week in response to the latest data from the Energy Information Administration showing that US crude oil inventories declined by 5.3 million barrels.
- Breakdown of the data for the week ending September 7th
- US crude oil refinery inputs average 17.9 million barrels per day
- Gasoline production rose to average 10.4 million barrels per day
- US crude oil imports fell by 123k barrels per day to average 7.6 million barrels per day
- US commercial crude oil inventories decreased by 5.3 million barrels per day
- Total products supplied over the last four weeks averaged 21.5 million barrels per day, rising 5.1% year on year.
Latest IEA Reports Shows Global Oil Supply at Record High in August
In its latest update, the International Energy Agency noted record levels of global oil supply over August with output hitting 100 million barrels a day for the first time. The report showed that increased production from the Organization of Petroleum Exporting Countries (OPEC) was able to offset the seasonal declines seen among non-OPEC members comfortably. The IEA now forecasts non-OPEC production to rise by 2 million barrels per day over 2018 and 1.8 million barrels per day in 2019 headlined by “relentless growth led by record output from the US.”
OPEC growth hit a nine-month high over August at 32.6 million barrels per day which came despite ongoing concerns over weakened production in crucial producers like Venezuela and Iran. Surges offset reductions in these regions in output in Nigeria, Saudi Arabia, Libya, and Iraq.
These increases come on the back of OPEC’s decision in July to begin raising output this year in a bid to stabilize markets and buffer the losses from the reduced production in Venezuela and Iran which are OPEC’s sixth and third largest producers respectively.
Iranian Sanctions To Curb Supply
The fundamental outlook for oil markets encouraging given the anticipation that fresh US sanctions on Iran will have a substantial downward effect on supply levels. Tehran looks likely to lose all access to the majority of its energy export markets from November 4th as President Trump prepares to activate fresh sanctions on the country after the US pulled out of the Iran nuclear deal in May.
Over August, Iranian production was significantly lower, falling 150k barrels per day to 3.63 million barrels per day, marking its lowest level since July 2016 as buyers reduced their orders ahead of the impending US sanctions.
Demand Outlook Not So Strong
However, the demand outlook is less encouraging. The IEA forecasts global oil demand to remain the same at 1.4 million barrels per day over 2018 and 1.5 million barrels per day over 2019, far below the projected supply levels. The IEA attributes this to weaker OPEC demand among some members in Europe and Asia along with higher gas prices in the US. Furthermore, fragility in emerging markets is expected to weigh on demand also as uncertainty linked to ongoing global trade disputes and weak currencies remains a key risk in 2019.
Upside Price Risks Still Visible
However, it is worth noting that oil markets are still tight despite healthy production and supply levels and that any disruptive issues among any of the key producers could cause a sudden shift in the market. Iraq, which is the second biggest producer in OPEC and recorded 4.65 million barrels a day of production in August, is currently suffering from violent protests in and around Basra. As the region is home to the bulk of the country’s oil production facilities, these protests have the potential to disrupt production if they worsen.
Furthermore, Libya, which is another crucial producer faces fresh US sanctions following the attack by a Libyan militia leader on a rival oil facility in June which poses the threat of further unrest and supply disruption.
For now, the price is still sitting just above the 67.07 support level and rising trend line from 2017 lows. However, we do have a potential head and shoulders pattern in play, and a break of the trend line will bring deeper supports at 62.42 and 55.42 into focus. To the topside, the critical level remains the 74.82 2018 high.