US Crude Stores Rise As Production Soars

Weekly Crude Oil Inventories Report

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Crude oil prices were knocked sharply lower this week in response to the latest report from the Energy Information Administration. The EIA showed that in the week ending December 6th, US crude stores rose by 800k barrels.

This was in stark contrast to the expected 2.8 million barrel drawdown which analysts were forecasting ahead of the release. The data came on the back of Tuesday’s API release, which reported 1.4 million barrels.

This latest increase in surplus levels takes inventories back up to 447 million barrels.

Gasoline & Distillate Stockpiles Rise

Elsewhere, the data was equally bearish. Gasoline inventories were seen higher by 5.4 million barrels over the week, marking a further increase from the prior week’s 3.4 million barrel increase.

Gasoline production over the week was higher by a significant 9.8 million barrels, again coming on the back of the prior week’s 9.9 million barrel increase.

Distillate fuel inventories, which include diesel and heating oil, were also higher over the week by 4.1 million barrels, extending gains from the prior week’s 3.1 million barrels.

Distillate production over the week was higher by 5.2 million barrels per day.

EIA Raises US Crude Production Forecasts

The data, which once again puts focus on the growing supply/demand imbalance in the markets, has compounded the bearish update from the EIA earlier in the week.

On Tuesday, the EIA released its Short-Term Energy Outlook for December. In the latest forecast, the EIA once again revised its US crude production outlook higher. The EIA now forecasts production to hit 13.2 million barrels per day in 2020. This would be up by 0.9 million barrels per day from the 2019 level.

US Turns Net Exporter of Crude

Also of note was the section on US crude exporting. The US was recorded as having exported 90k barrels per day more than the total number of crude and petroleum products importance in September.

This marks the first month that the US has exported more crude products than it imported. It comes as evidence of the growing shift in the US away from being a net importer of oil to being a net exporter.

Looking ahead, the EIA now forecasts that US crude exports will total 570k barrels per day in 2020. This is against an average of 490 barrels per day in imports, confirming the shift to a net-exporter.

OPEC Announces Deeper Production Cuts

The continued increases in both US crude inventories and US crude output forecasts will be frustrating for OPEC.

The producer-nation cartel, along with a group of allied-nations led by Russia, recently announced that it will increase production cuts from 1.2 million barrels per day to 1.7 million barrels per day.

The group cited the ongoing downside pressure from the US-China trade war, which has yet to be resolved. With the market potentially approaching another round of US tariffs on December 15th, the near term outlook for crude has clear downside risks.

Reports this week that the US is considering postponing the tariffs are offering some support here. This should offset the downside in oil if tariffs are, in fact, postponed.

Technical Perspective

wti

Crude prices continue to grind higher within the bullish channel which has framed the months-long recovery off the 51 level. While still capped by the 60 level resistance for now, bearish divergence in the RSI indicator raises the potential of a reversal lower.

The 55 level remains the key pivot to watch, keeping focus on further upside while above and shifting focus to the downside if we move below.

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