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Less Than Anticipated Crude Withdrawal and Demand Concerns Keeps Prices Flat Despite OPEC Cuts

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US crude oil stocks posted a decrease of 1.1 MMBbl from last week. Gasoline inventories decreased 1.6 MMBbl and distillate inventories increased 1.4 MMBbl. Yesterday afternoon, API reported a crude oil draw of 5.0 MMBbl alongside gasoline and distillate draws of 0.4 MMBbl and 1.7 MMBbl, respectively. Analysts were expecting a smaller crude draw of 2.5 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted an increase of 2.5 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

US crude oil production increased 100 MBbl/d last week, per the EIA. Crude oil imports were up 0.9 MMBbl/d last week, to an average of 7.6 MMBbl/d. Refinery inputs averaged 17.3 MMBbl/d (47 MBbl/d less than last week’s average), leading to a utilization rate of 94.2%. Prices are mixed this morning due to less than anticipated crude oil withdrawal and total petroleum stocks build. Prompt-month WTI was trading up $0.08/Bbl, at $56.33/Bbl, at the time of writing.

The outcomes from the OPEC and G20 meetings provided some support to prices on Monday; however, they were short-lived, as demand worries took control over the sentiment once again. The agreement between OPEC and its allies to extend supply cuts until next March, and the trade truce between the US and China as US President Donald Trump and Chinese President Xi Jingping shook hands to restart trade negotiations pushed prices to their highest levels in over a month on Monday. Although the US–China trade truce provided some support to prices, prices retracted nearly 5% on Tuesday, shrugging off the OPEC cut agreement as the market once again focused on the slowing global economy and its effects on oil demand. The trade truce between the US and China provided only a brief relief for prices, as the agreement only means that both countries will hold off on introducing any additional tariffs, while the 25% tariff on $250 billion of Chinese imports remains in place. The realization that trade disputes between the world’s two largest economies continue —  with the existing tariffs already taking a toll on global economic health and demand growth  —  and the shrinking factory and manufacturing activity across Europe and Asia raised concerns over slowing demand once again.

The decision by OPEC and its allies, including Russia, to extend the existing cuts until March 2020 will certainly support prices, but it was also a decision that was expected from the group and the bare minimum OPEC+ could have done in order to prevent a downward spiral of prices given the continuously increasing US production and weak demand. The geopolitical tensions between the US and Iran as well as OPEC production cuts and declining production from Venezuela and Iran will keep a floor prices strong; however, as we move into the second half of 2019, the market will be paying more attention to demand and global economic health as, both of which currently look gloomy and could deteriorate further.

The brief run up to $60/Bbl found selling given the concerns over economic health and demand growth. The market may try to consolidate in the upcoming weeks between the previous week’s resistance level of $56.84/Bbl and last week’s highs of $59.93/Bbl, as trade further digests the tariff issues between China and the US and the extended OPEC+ cuts.

Petroleum Stocks Chart

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