Third Straight Weekly Fall in US Crude Stores
Crude prices have softened a little today following an initial rally yesterday. This was in response to the latest industry report which showed a further drawdown in US crude stores. The Energy Information Administration’s report, covering the week ending June 28th, showed that US crude stored fell by 1.1 million barrels.
Despite being the third consecutive weekly drawdown now, the fall was less than the 3 million barrel decline the market was looking for. At the Cushing delivery hub in Oklahoma, crude stores actually rose by 625k barrels.
Gasoline Down, Distillates Rise
Elsewhere, the data showed that gasoline stocks were also down. Gasoline stocks fell 1.6 million barrels over the week. Again, however, this was below the expected 2.2 million barrel decline.
Distillate stockpiles, which include diesel and heating oil, rose over the week, moving higher by 1.4 million barrels. This was in contrast to an expected 1 million barrel decline.
US Crude Imports Rise
US crude imports were higher again last week, rising 929k barrels to 7.7 million barrels per day. This figure is above the recent four week average of 7.3 million barrels per day.
Meanwhile, US crude exports were lower over the week by 780k barrels, averaging 3 million barrels per day.
Market Reacts To OPEC Meeting
While the report is still bullish for crude, the surprise jump in imports blunted the expected drawdown in inventories. This, in turn, has subdued the upside reaction in the market. Indeed, oil has also seen a muted reaction to the other key driver this week which was the July OPEC meeting.
The group had been widely expected to announce an extension to the cuts that have been in place since January. The re-emergence of trade war tensions between the US and China, as well as surging US crude production over the year, have blunted the rally that had been going strong in oil. This had led to expectations of an OPEC extension.
OPEC Extends by 9 Months
While OPEC did indeed announce an extension to its production cuts, the 9-month extension was longer than the market had been anticipating.
OPEC designed it this way so that it would cover the low demand period over Q1 2020. However, despite the news, crude was sharply lower in response. This raised questions about the market’s conviction in OPEC’s ability to drive prices higher.
Demand Outlook Plaguing Oil Prices
In terms of the negative reaction, which will no doubt be disappointing to OPEC, concerns around the demand outlook as well as over OPEC’s ability to maintain obedience to cuts, are the likely drivers.
Demand forecasts have been slashed by both the EIA and the IEA recently due to weak growth In China and India. Alongside this, surging US crude production is also weighing on the outlook.
OPEC has said that it will review its decision in December which could see the operation brought to an early finish, or even extended further.
Oil prices continue to trade within the corrective bearish channel, for now, having recently found resistance at the 59.77 structural level. There, price also tested the channel top. 55.86 is holding as support for now, while below here, 54.27 is the next support. Bulls need to see a break above the 59.77 level to encourage fresh topside momentum and a resumption of the bullish move from 2018 lows.