US crude oil stocks posted a decrease of 2.7 MMBbl from last week. Gasoline and distillate inventories increased by 0.3 MMBbl and 2.6 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 3.5 MMBbl, while reporting a gasoline draw of 0.4 MMBbl and a distillate build of 1.8 MMBbl. Analysts were expecting a crude oil draw of 1.9 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted an increase of 4.0 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.
US crude oil production remained unchanged last week, per the EIA. Crude oil imports were down 0.49 MMBbl/d last week, to an average of 7.2 MMBbl/d. Refinery inputs averaged 17.7 MMBbl/d (0.40 MMBbl/d more than last week’s average), leading to a utilization rate of 95.9%. The crude oil draw for the first time in three weeks brought some support to prices, but the total petroleum stocks build is limiting the price gain. Prompt-month WTI was trading up $0.30/Bbl, at $56.43/Bbl, at the time of writing.
Prices dipped below the $55/Bbl level last Wednesday, after disappointing global economic data as well as the inversion of US bonds, which increased concerns of a possible recession. Since then prices have recovered some of their losses due to a slight softening of the trade war between the US and China. The optimism regarding a possible thaw of US–China tensions came after US President Donald Trump remarked that he would be talking with Chinese President Xi Jinping to discuss trade issues, and was furthered bolstered by the US stating it would extend a reprieve that permits China’s Huawei Technologies to buy components from US companies. The hopes that major economies around the globe will take stimulus measures to battle the economic slowdown also gave some support to prices. Although there is some hope that US–China tensions will ease off and major governments will become more aggressive in delivering stimulus, the current gloomy outlook on global economic health and demand projections, as well as the warnings from OPEC and IEA reports that an oil glut in 2020 is likely, are still keeping the pressure on prices and limiting any significant gains.
In addition to expectations of greater monetary stimulus by central banks across the globe to battle a possible recession, prices also got support from a drone attack by the Houthi group on an oilfield in eastern Saudi Arabia on Saturday. The attack caused a fire at a gas plant, adding more concern to existing tensions in the Middle East and possible supply disruptions in the region. However, the effect on prices were minimal, as Saudi Aramco stated that oil production was not affected, and because the market seems to keep its focus on the gloomy and further-deteriorating global economic health and demand projections.
Evidence is mounting that without a large reduction in output from OPEC or some level of conflict occurring with Iran, price rallies (up to $61 to $64) will be sold until the tariff issues between the US and China come to some sort of pause or solution. The market remains within a range of $50 to $61. Expect this type of environment to continue until further evidence of solutions occur. That said, due to the precarious nature of the tariff struggle, there remains the possibility of China ignoring the bans on buying Iranian crude (in place of US crude) as a retaliatory posture, likely pressuring prices below $50. This event could flood the global crude market going into an already oversupplied 2020.