Weekly Crude Oil Inventories Report

Crude Hits One Month Low On Fourth Consecutive Weekly Build

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Crude oil prices were lower this week as the latest report from the Energy Information Administration showed that US crude oil stockpiles rose again last week. In the week ending October 12th, US crude oil inventories rose by 6.5 million barrels, far out-stripping the market forecast of a 1.6 million barrel gain. This latest rise in inventories marks the fourth consecutive weekly gain and came despite US crude oil production falling 300k barrels per day to 10.9 million barrels per day.

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Gasoline and Distillates Down Also

The latest EIA report also shows that gasoline inventories were lower by 2 million barrels over the week, bigger than the forecast for a 1.07 million barrel drawdown. Distillate stockpiles were also lower by 0.8 million barrels over the week, though this was less than the forecasted 1.3 million barrel decrease.

Saudi Journalist Issue Prompts Oil Rise

Oil prices had been higher on the week initially following reports that US lawmakers were accusing the Saudi leadership of being responsible for the disappearance of journalist (and key Saudi critic) Jamal Khashoggi. Khashoggi was seen entering the Saudi consulate in Istanbul two weeks ago and has not been since.

News of the US accusation prompted speculation of potential sanctions on Saudi Arabia, fuelling the bid oil, with Trump promising “severe punishment” if the country was found to be responsible. However, comments from President Trump since then, saying that the US will not look to take action, in the wake of the Saudi government says it will launch an official investigation, saw this bid dissipate.

Critics Accuse Trump Of Cowing Down To Saudis

However, some critics suggest that this is simply Trump cowing down to the Saudi’s due to their power to drive oil prices as Saudi Arabia could easily slash oil production, to ramp up oil prices, in retaliation to any US sanctions.

Oil markets have been rising steadily over recent months as the market braces for the forthcoming US sanctions on Iran due to go live on November 4th and set to wipe around 1 million barrels per day of crude supply off the market.

OPEC Production Boost In Doubt

OPEC has been hard at work trying to secure an agreement to boost oil production to buffer against the price rise that would occur in response to such a decline in production. While the recent OPEC meeting passed without an official agreement, Russia and Saudi Arabia have since announced that they struck a private deal to boost oil supply in a bid to mitigate the loss in supply from Iran. However, Iran is now accusing Saudi Arabia and Russia of breaking the OPEC driven agreement on output cuts in 2016 by continuing to produce more oil over the period.

Technical Perspective

Crude oil has been continuing to trade within the broad bullish channel which has framed price action over the last three years. However, momentum studies are highlighting strong bearish divergence within the movement over the last three drives higher, suggesting the potential for a reversal. This is especially interesting considering that institutional positioning data has shown a steady reduction in upside exposure over recent months.

In terms of levels, to the downside, the key zones to watch for support will be the 50% retracement from 2917 lows around 59.57, where we also have the rising trend line support of the channel. Below there, the 61.8% retracement at the 55.29 level will be in focus.

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