Crude Fails To Rally on Inventories Drawdown

Weekly Crude Oil Inventories Report

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Fifth Weekly Drawdown

Frustratingly for oil bulls, crude showed a rather subdued reaction to yesterday’s weekly Energy Information Administration report. The results showed a further drawdown in US crude stores.

Covering the week ending July 12th,  the report indicated that US crude stores fell by a further 3.1 million barrels. This decline was greater than the 2.7 million barrel decrease forecast. It also marks the fifth consecutive weekly decline in US inventories.

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Gasoline Inventories Surge

While crude stores declined, the report also showed that gasoline inventories rose. Gasoline inventories jumped 3.6 million barrels, which was in stark contrast to the 925k barrel drop the market was looking for.

Similarly, distillate stockpiles, which include diesel and heating oil, also jumped over the week. The report showed a rise of 5.7 million barrels. This figure was, again, far above the expected 613k barrel increase. Total refinery runs were down by 171k barrels per day.  And refinery utilization rates fell 0.3% to 94.4% of total capacity.

US Crude Production Drops

Net US crude imports were also slightly higher, rising 44k barrels per day over the week. Meanwhile, net exports cratered by around half a million barrels per day.

This was in line with the sharp drop in US crude production. This fell 300k barrels per day over the week, taking total production back down to 12 million barrels per day.

US Hurricane Disrupts Production

The sharp drop off in US crude production has been attributed to storm Barry which made a landfall on Saturday in central Louisiana.

The storm has been classed as a category 1 hurricane and oil companies in the region quickly shut down around 75% of production at the US Gulf of Mexico stations. According to the US offshore drilling regulator, US offshore oil production was still down by 58% as of Tuesday.

Demand Outlook Causing Concern

However, the report has failed to provide the platform for a rally, which we would typically see in response to an EIA report showing reduced US crude stores and crude production levels. The data has, so far, only been able to stem the declines in crude prices.

It seems that the market is more concerned about the broader demand outlook, given the turndown in the global economy. Both the EIA and OPEC have revised their demand forecasts lower for the remainder of the year and into next year, which has halted the rally in crude for now.

Trump Complains About China

Despite the US and Chinese leaders agreeing to restart trade talks at their meeting at the recent G20 summit, President Trump has complained that China has not yet honored its pledge to increase purchases of US agricultural goods. This has poured cold water on the optimism that had been boosting oil, leading to lower prices.

Frustration for OPEC

The move lower will be frustrating for OPEC. The group recently announced an unexpected 9-month extension to the current production cuts. The move did little to underpin oil prices, though. And the market is seemingly more focused on OPEC’s concern over the demand outlook going into 2020, which is keeping oil pressured.

Technical Perspective

WTI

The sell-off in crude oil this week has seen price trading back under the bearish trend line from 2019 highs, following last week’s breakout, which failed at the 60.32 level. For now, crude is holding above the 56.18 level support which, while intact, suggests we could still see a further push higher. Should we break lower from here, however, the next two levels to watch will be 54.61 and 51.26.

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