Weekly Crude Oil Inventories Report

Crude Rally Pauses As Stockpiles Build Once Again & Geopolitical Tensions Rise

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Crude Build Up Returns

Following a strong rally over the last three weeks, crude prices stalled this week as the latest industry data reported an unexpected build in inventories. The Energy Information Administration report, covering the week ending January 18th, showed that US crude inventories rose by 8 million barrels to close the week at 445 million barrels.

Domestic crude stocks are now around 9% above the five-year average for this time of the year according to the report. The build comes as a strong shock to the market which had been expecting a 42k barrel drawdown.

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Gasoline Stocks Hit Record Highs

Additionally, the report showed that US gasoline stocks also rose for the eighth consecutive week, by a further 4.1 million barrels. This latest increase was well above the forecast 2.7 million barrel increase and takes total gasoline stocks to a record 259.6 million barrels.

Distillate Stockpiles Fall

The report also showed that distillate stockpiles, including diesel and heating oil, were down by 617k barrels, signaling a drawdown far exceeding the forecast 229k barrel decrease.

Net crude imports to the US were up 1.6 million barrels per day while refinery crude runs were down 174k barrels a day at 17 million barrel. Refinery utilization rates fell 1.7% over the week though, at 92.9%, they remain firm.

Output levels at refineries fell back over the week following a long run of high capacity operation, needed to satisfy the seasonal demand for diesel and heating oil as well as meeting foreign demand for exports. However, this has led to a large build up in gasoline stocks which could see refiners backing off further in coming weeks as the US heating oil season starts to wind down.

OPEC Concerned as Trump Attacks Venezuela

Crude bulls have also been frustrated this week by the negative news around Trump attacking the Venezuelan president. Trump publicly stated that he recognizes the opposition party in Venezuela as the legitimate government and has threatened the sitting government with sanctions on oil exports along with potential military action.

Venezuela has seen a catastrophic economic collapse over recent years following a severe deterioration in the country’s oil industry along with the negative impact of US sanctions, which have taken their toll.  The issue is now starting to worry OPEC given Venezuela’s status as a founding member.

Trump Threatens Sanctions on Venezuelan Oil

It is unclear yet what sort of shape US sanctions could take. On the one hand, the US could simply restrict imports from Venezuela, which would see the output most likely re-routed to China and India. On the other, broader sanctions prohibiting Venezuela from dealing with other key economic players, as is the current situation with Iran, could have a much larger impact on the market.

Given that the crude produced in Venezuela is of the heavier variety, which is already under output restrictions following the production cuts announced by OPEC late last year, this would further widen the excess of the lighter variety of crude that is heavily produced by the US.

Technical Perspective

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The rally in crude is now stalling just ahead of technical resistance overhead where we have confluence between the 55.43 level (key resistance over 2016 / 2017) and the completion of a symmetry swing, mapping the last push into the high before oil sold off last year.

While price is stalled around this level, the potential of a resumption of the bearish move is likely. Above here, however, focus will turn to a retest of the broken bullish trend line from 2015 lows along with further structural resistance at the 62.52 level.

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