API Reports Crude Build Up
After surging to fresh seven-year highs last week, crude oil prices have since turned lower this week as a combination of factors including unexpected builds in crude oil inventories, increased OPEC supply, weather shocks and equity market volatility have weighed on prices.
The latest report from the American Petroleum Institution earlier in the week showed that US crude oil stockpiles rose last week. In the week to October 5th, US crude oil stocks rose by 9.7 million barrels to 410.7 million barrels, far outweighing the consensus forecast for a 2.6 million barrel rise.
EIA Reports Higher Crude Stockpiles
Crude oil was sharply lower across the week as the latest data from the Energy Information Administration came in on Thursday confirming the reduced demand in the market. The most recent data showed that stockpiles in the US had risen by 6 million barrels over the week to October 5th. The EIA report said that refineries had operated at 88.8% of capacity and processing 16.2 million barrels per day of crude along with 9.7 million barrels per day of gasoline.
The data, which comes on the back of an unexpected increase of 8 million barrels over the prior week, has created heavy selling pressure in crude oil which had traded to its highest level in seven years over the last few weeks.
Hurricane Michael Causes Production Cuts
Industry data also reports that oil producers in the Gulf of Mexico dramatically cut their output by 42% last week due to Hurricane Michael. According to the Bureau of Safety and Environmental Enforcement, the cuts equate to around 700k barrels per day worth of supply reduction.
OPEC Forecasts Lower Global Demand
Crude came under further fire as a result of the latest OPEC report which forecasts reduced global demand next year. The oil-producing cartel now projects global oil demand to be at 1.54 million barrels per day by year-end, down 800k barrels per day from the prior forecast. The group cites ongoing trade disputes as well as weakness in emerging markets as being the key contributing factors.
Furthermore, the group noted that several of its key members had raised their output over September in a bid to mitigate the drop in supply as a result of the sanctions in Iran which are due to start on November 4th and look set to wipe around 1 million barrels per day off the market.
The dramatic declines seen across global equity markets this week will also be taking a toll on oil as investors run for safety. This dynamic is visible in the moves we have seen in gold prices which have soared to fresh multi-month highs in response to the declines.
The rally in oil prices last week brought price up to test the long-term bearish trend line from 2008 highs. This was only the fourth touch of the trend line over the previous ten years and saw price quickly rebuffed lower. Price has since traded back below the 74.82 level which was the initial 2018 high. While below here, the focus will be on a test of the 66.72 level which was the big 2010 low. If price can hold here, we can expect some consolidation in the short term.
Price is now at a significant technical crossroads given the collision of the bullish channel from 2016 lows and the long-term bearish trend line with traders waiting to see which side breaks.