Crude Stores Drop Despite API Indication of a Build
The declines in crude oil came to a halt this week as, despite an early indication of a further build by the API report, Wednesday’s EIA reports showed a drawdown in US crude stocks.
The report from the Energy Information Administration showed that in the week ending May 3rd, US crude stores rose by 4 million barrels. This was despite expectations of a 1.2 million barrel increase. Coming on the back of the prior week’s mammoth 9.9 million barrel increase, bulls welcomed the news with a sense of relief. Now sitting at 466.6 million barrels, crude inventories are now right on their five-year average for this time of year.
Gasoline Inventories Down
Gasoline inventories were also lower. They have fallen by 600k barrels over the week to run at 2% below their five-year average for this time of year. Distillate inventories, which include diesel and heating oil, also fell by 200k barrels over the week. They are now sitting 5% lower than their average for this time of year. Meanwhile, propane-propylene inventories increased by 1 million barrels last week, now sitting 17% above their five-year average for this time of year.
Elsewhere, the data showed that US refinery inputs averaged 16.4 million barrels per day over the week. This is roughly 41k barrels per day less than the prior week with refineries running at 88.9% of total capacity. Gasoline production rose again last week averaging 10.1 million barrels per day. On the other hand, distillate production decreased, averaging 5.1 million barrels per day over the week.
US Crude Imports Down
Furthermore, the report showed that US crude imports have fallen over the week. They are down by around 712k barrels per day, to average 6.7 million barrels per day. The report showed that over the last four weeks, crude imports have averaged 6.8 million barrels per day. This is roughly 15% less than the same time last year.
EIA Forecasting Higher US Crude Production
The report comes a day after the EIA released its latest oil market outlook in which it forecasts US crude production to rise by 1.49 million barrels per day over the year to average 12.45 million barrels per day. This new forecast marks an upward revision from the prior projection of a 1.43 million barrel increase. Rising US crude production has been a strong counterweight for the ongoing OPEC cuts this year. Over recent months this has started to weigh on the price.
Opposing Forces Constrict Price Action
Oil prices have had a fairly muted week as the market remains caught between two opposing forces. Prices were initially lower at the start of the week. This was a result of markets reacting to news that Trump is planning to increase current 10% levies on $200 billion of Chinese goods to 25% as of Friday.
However, the market then whipsawed higher in reaction to news that the US will deploy warships to the Middle East as a deterrent to Iran. An escalation of tensions there has raised concerns about possible supply disruption. For now, this is acting as a counterweight to the likely demand disruption of a reigniting of the US/China trade war.
Following the breakdown through the rising trend line from last year’s lows, crude prices were able to find support at a test of the 60.47 level. They have now stabilized around the higher level of 61.89. While price can remain above here, the focus will be on an eventual move back up to test the 64.38 resistance while a break lower will open the way for a test of deeper support at 57.98.
The lower timeframe shows oil trading within a corrective bearish channel. However, bullish RSI divergence suggests the risk of a reversal higher, and a resumption of the higher timeframe trend with 61.89 the level to break in the short term.