US crude oil stocks posted an increase of 2.8 MMBbl from last week. Gasoline and distillate inventories decreased 2.9 MMBbl and 2.1 MMBbl, respectively. Yesterday afternoon, API reported a crude oil build of 1.9 MMBbl alongside gasoline and distillate draws of 3.5 MMBbl and 4.3 MMBbl, respectively. To the contrary, analysts were expecting a crude oil draw of 1.1 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a small increase of 0.1 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.
US crude oil production remain unchanged last week, per the EIA. Crude oil imports were down 0.39 MMBbl/d last week, to an average of 6.5 MMBbl/d. Refinery inputs averaged 15.8 MMBbl/d (376 MBbl/d less than last week), leading to a utilization rate of 86.6%. Oil prices are mixed as crude oil inventory build and worries about global economic and demand growth pressure prices while supply cuts and latest power outage in Venezuela halting crude exports are supporting prices. Prompt-month WTI was trading down $0.13/Bbl, at $59.81/Bbl, at the time of writing.
Prices traded in the $58/Bbl to $60/Bbl range last week and are still near their four-month highs as trade continues its focus on the tightening supply levels. WTI prices briefly tested the $60/Bbl area last week, however declined on Friday due to remarks from the US Federal Reserve, weak manufacturing data from Asia, Europe and the US, as well as ongoing trade disputes. The disappointing manufacturing data led to an inversion of the US Treasury yield curve, which intensified the concerns over an already gloomy global economic and demand growth as this inversion can be interpreted as a leading indication for a possible recession.
Prices were mixed at the beginning of the week as they were being pulled in both directions, with OPEC-led supply cuts and the cancellation of the April OPEC+ meeting due to current market fundamentals still pointing to an oversupplied market supporting the bullish side, and the increasing global economic and demand growth concerns supporting the bearish sentiment. Tuesday brought some recovery to trade with prices increasing nearly 2%, as the market focused on the reducing supply levels and Saudi Arabia’s willingness to see higher prices. Continuing supply cuts, declining Iranian production, and rumors around Saudi Arabia pushing for at least $70/Bbl Brent to balance their budget were the main catalysts supporting the price increase. Prices got further support from another power outage in Venezuela, raising concerns about the country’s oil exports as Venezuela already is facing political turmoil and sanctions from the US.
Although bullish sentiment has recently increased, significant price gains are still being limited by continuously increasing US production and the fears of a slowdown in global economic and demand growth. US production is showing no signs of slowing down and will increase further in 2019, as many of the operators are beginning to hedge production at higher prices and are projecting double-digit growth rates for 2019, which could potentially offset the supply cuts by OPEC and non-OPEC producers. The ongoing US-China trade negotiations are another risk for prices, as trade talks continue between the world’s two largest economies but seem to get nowhere. Failure to reach an agreement could mean a huge threat to already concerning global economic and energy demand growth, which could potentially pressure prices further.
The trade jumped, tested and broke above the $60.00/Bbl area briefly, only to find significant selling. Whether this price enticed producers to hedge or profit motives had been achieved, the decline on the disappointing economic news was volatile, taking prices down to $58.28/Bbl. Momentum indicators are still positive, but are approaching overbought levels. Both volume and open interest were down, which also reflects the tepid nature of the gains. With $60.00/Bbl having been achieved on the existing news in the market, further advances will likely need a new catalyst. Without such a catalyst, a consolidation phase to WTI trade should be expected, with the high side around $60.00/Bbl and a potential retracement back to the breakout area around $57.96/Bbl, and possibly down to $55.00/Bbl.
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