US crude oil stocks increased 5.8 MMBbl last week. Gasoline and distillate inventories decreased 3.2 MMBbl and 0.4 MMBbl, respectively. Yesterday afternoon, API reported a crude oil build of 0.63 MMBbl, alongside a gasoline draw of 0.43 MMBbl and a distillate build of 1.71 MMBbl. Analysts, on the contrary were expecting a crude oil draw of 3.6 MMBbl. The most important number to keep an eye on, total petroleum inventory levels, posted a sizable build of 6.0 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.
US crude oil production was estimated to be up 100 MBbl/d from last week, per EIA. Crude oil imports were up 1.64 MMBbl/d last week, to an average of 9.1 MMBbl/d. Refinery inputs averaged 17.2 MMBbl/d (413 MBbl/d less than last week), leading to a utilization rate of 94.3%. The report is bearish due to higher than expected crude oil and total petroleum stocks build. Increasing global supply, weaker demand, rise in US crude inventories, and EIA reporting record US production with 11 MMBbl/d are also pressuring prices. Prompt-month WTI was trading down $0.05/Bbl, at $68.04/Bbl at the time of writing.
Prices continued their decline into the weekend as a series of bearish news continued to hit the market reversing sentiment, causing WTI to slump nearly 5% on Monday. WTI prices beginning of the week have been trading nearly 10% less than the three-year high levels seen just over a week ago.
Prior to the sharp decline on Monday, prices were trading near their three-year highs supported by bullish news and supply shortage expectations. Sanctions on Iranian crude and US calling its allies to cut imports to zero from the country has been the main catalyst for the price rally. Helping the price rally was also Venezuela’s terminally declining production, and short-term supply outages from Libya, Canada, and Norway. Following the price rally, OPEC decided to increase supply levels in order to offset the production declines and balance the market. Russia joined Saudi Arabia in this quest which gave the market signals that supply levels would soon rise, however skepticism if additional barrels would be enough to offset the declines settled in the market.
Saudi Arabia increasing production by 0.5 MMBbl/d in June, while Russia increasing production to 11.1 MMBbl/d in first week of July, surely increased the bearish sentiment but was not enough to cause a price drop. Prices saw further pressure after Libya reopened its ports ramping up supply levels and US-China trade wars escalated further.
Sentiment quickly shifted on Monday following a series of bearish news which cause prices to tank. Biggest catalysts causing prices to tank were: 1) News on Trump administration’s consideration of tapping into US Strategic Petroleum Reserve if supply outages worsen. 2) News on potential for US waivers on Iranian crude sanctions. These two headlines would have been enough to cause sharp drop in prices, however IMF showing a slowdown in global economic growth and news on Saudi Arabia offering extra crude on top of contractual supplies to the Asian market signaling they have room to increase production, added more fuel to the fire, sending prices to a downward spiral.
With prices for WTI reversing off the early strength, especially declining last week despite a very bullish inventory report, the high end of the current trade range has likely been established at the recent high ($75.27). The low side of the new range is likely last week’s low, down to the late June lows around $67. With all the bearish news spinning around in the market, price action will continue to be volatile, similar to what it was last week and could test $65/Bbl levels if bearish events continue to appear. Eventually, after the volatility recedes and consolidation commences, current events and continued US growth may force a retracement of prices into a zone between $60 and $65.