Crude Oil Down As US Crude Production Weighs

Weekly Crude Oil Inventories Report

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Crude oil prices were lower this week despite the latest industry report showing a drawdown in crude oil inventories.

The report from the Energy Information Administration, covering the week ending April 12th, showed that US crude stocks were down by 1.4 million barrels over the week. This was in stark contrast to the 1.7 million barrel gain the market had forecast.

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Gasoline & Distillate Stocks Down Also

The breakdown of the data shows the majority of the drawdown occurred in the midwest region. This saw a drawdown of 2.4 million barrels to 135.3 million barrels. Net crude imports were also down by 659k barrels per day.

Gasoline stockpiles were down again last week, falling 1.2 million barrels over the week. However, this was less than the 2.1 million barrel drop the market had anticipated. Distillate stockpiles, including diesel and heating oil, were also down last week falling 362k barrels over the week.

However, again, this was less than the 846k barrel drawdown the market was expecting. Refinery crude runs were also down over the week falling 22k barrels per day. And refinery utilization rates moved slightly higher by 0.2%, to 87.7% of total capacity.

EIA Forecasts Higher US Crude Production

However, it seems that news of a small drawdown in stockpiles was not enough to lift oil prices. These remained subdued over the week as the market continues to pause following last week’s oil outlook update from the EIA.

The EIA updates its projections for 2019 to reflect expectations of a further increase in US oil production. Crude production in the US is already at record highs and the EIA forecasts it to grow further over the year, consequently having a dampening effect on prices.

OPEC Production Cuts to Be Extended?

The retracement in oil this week, however, has been incredibly mild as prices remain underpinned by ongoing OPEC production cuts. The group has been cutting its production levels, along with a group of allied producers lead by Russia, since January.

These cuts have been responsible for a large portion of the rally we have seen this year and there is now a growing expectation that OPEC will extend these cuts when it next meets in June.

Trade Talk Optimism Providing Boost Also

Alongside the ongoing OPEC production cuts, oil prices have also been buoyed by optimism around US/China trade negotiations which look very close now to delivering a deal.

The two sides have been joined in ongoing talks this year which led to President Trump postponing the initial March 1st deadline to allow for talks to continue. Trump recently told reporters that he feels an “epic deal” could be as close as just four weeks away.

Technical Perspective

crude oil

The higher time frame charts show the extent of the oil rally this year which has seen price recovering from around the mid $40s to mid $60s currently.

Price is stalled at the 64.38 resistance level for now with a break above this level turning focus onto 65.64 next. If we move lower from here, 61.89 is likely to provide initial support, with 60.41 coming in below that.

oil chart

The lower timeframes show the current 63.14 – 64.70 range that is framing oil. Despite several tests, we are yet to see a meaningful break either side. Nevertheless, for now, in light of the longer term trend, risk remains skewed to the topside.

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