Crude Rallies Despite EIA Inventories Build

Weekly Crude Oil Inventories Report

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Crude Stores Rise Again

Crude prices have been firmer into the end of the week despite the latest report from the Energy Information Administration.

The report covering the week ending October 11th showed a further increase in US crude stores, rising 9.3 million barrels.

Now at 434.9 million barrels, the EIA report notes that US crude stores are sitting roughly 2% above the five-year average for this time of the year. This latest increase is the fifth straight build in US crude stores week-on-week and reflects the level of oversupply in the US market.

The report also shows that net US crude imports were up 70k barrels per day on the prior week. They have now hit 6.3 million barrels per day. The US has now averaged net-crude imports of 6.3 million barrels per day over the last four weeks. However, this is nearly 20% lower than the same period last year.

Gasoline Inventories Down

The report was not totally bearish, however. Gasoline inventories were seen lower by 2.6 million barrels last week. That being said, they are still about 2% above the five year average for this time of year.

Distillate fuel inventories, which include diesel and heating oil, also decreased by 3.8 million barrels last week and are about 11% below the five year average for this time of year.

Refineries were seen operating at an 83.1% capacity rate. Refinery inputs are at 15.4 million barrels per day over the week, down 221k barrels per day from the prior week. Both gasoline and distillate production decreased last week also, averaging 10 million and 4.7 million barrels per day respectively.

Though still at record highs, crude bulls will have at least been relieved to see that US crude oil production last week was unchanged on the previous week. At 12.6 million barrels per day, they are now up by about 1.7 million barrels per day year on year.

EIA Forecasts Higher US Production

In its Short-Term Energy Outlook last week, the EIA forecasted US crude oil production to average 12.3 million barrels per day in 2019. This is up by 1.3 million from the 2018 level.

The EIA also forecasts production to rise by 0.9 million barrels per day over 2020 to hit an annual average of 13.2 million barrels per day, marking fresh record highs.

Brexit Hopes Supporting Crude

Despite the EIA reporting a fifth consecutive weekly build in US crude stores, crude prices have remained resilient into the end of the week.

Traders are continuing to focus on the developments in the external picture. The UK is now seemingly on the cusp of securing a Brexit deal following Boris Johnson’s success in gaining EU approval for his plan.

While he still has the difficult task of passing the deal through parliament, traders remain hopeful that a deal can be done. This should keep healthy trade between the UK and the EU going forward.

Traders Still Focused on US-China Trade Deal

Similarly, traders are remaining optimistic over the ongoing US-China trade negotiations. While the verbal deal agreed upon last week has yet to be signed, both sides are keeping the momentum going with further talks due to take place next week.

Data overnight showed Chinese GDP hitting a 26-year low over Q3 as a result of the trade war. This puts further emphasis on the need for a resolution.  

Technical Perspective

WTI

Crude prices continue to consolidate just above support at the 51.28 level. The recovery off 51.28 has been shallow so far. Price action appears corrective to the declines seen from the rejection above 60.09.

For now, focus is on an eventual break lower in the near term.

However, given the upside risk from positive trade-talk developments, we could see a further rotation higher back up within the range. If we do move higher, structural resistance around 56.66 will be the next level to watch.

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