Inventories Fall Unexpectedly
Oil markets have been higher this week in response to the Energy Information Administration reporting an unexpected drawdown in US crude stores. Analysts had been looking for a 5 million barrel rise in US crude stores.
However, the report showed that in the week to October 18th, US crude inventories fell by 1.7 million barrels.
The data also showed that refinery crude runs increased by 429k barrels per day over the week. And refinery utilization rates increased by 2.1%.
Crude prices jumped by around 1% in response to the news. This has assuaged some of the recent concerns over demand levels for crude.
US crude imports declined last week by 873k barrels over the week falling to their lowest level on record. This also helped boost oil prices. Meanwhile, exports were higher by 435k barrels to hit a record 3.7 million barrels per day.
Looking at the rest of the data, the report shows that gasoline stores were lower by 3.1 million barrels over the week. This is in contrast to the market forecasts of a 2,3 million barrel decline.
Similarly, distillate stockpiles, including diesel and heating oil, were also lower. They declined by 2.7 million barrels, slightly less than forecasts of a 2.8 million barrel decrease.
Risk Factors Improving
The rise in crude prices this week comes amidst a background of improved risk appetite. This is as a result of developments within Brexit negotiations and US-China trade talks.
Brexit now looks likely to be delayed given the defeats suffered by Boris Johnson in parliament this week. Consequently, the UK has now requested Brexit to be delayed further which the EU is currently considering.
The EU is likely to approve the request, which will see Article 50 extended until the end of January next year. Risk appetite has been supported in the wake of this development, with the UK now likely to avoid a hard Brexit.
The US and China are expected to sign off on the deal agreed at the latest trade talks earlier this month.
Talks have been continuing behind the scenes and current commentary remains positive. So, Trump’s plan to have himself and Xi sign the deal at the November APEC meeting might come to fruition.
If the deal comes to pass, this should offer support to oil prices which have been heavily impacted by the ongoing tariff war.
Crude prices are climbing back above 55 following the latest EIA data. The recovery off 51.25 support is gathering strength here. While above this level, focus is on a further push higher with the 57.78 level the next price to watch. However, back below this level focus will turn to a further test of the 51.25 zone which remains the key downside level to watch.