US crude oil stocks increased 3.8 MMBbl last week. Gasoline inventories declined 2.5 MMBbl while distillate inventories increased 3.0 MMBbl. Yesterday afternoon, API reported a crude oil build of 5.59 MMBbl, alongside a gasoline draw of 0.79 MMBbl and distillate build of 2.89 MMBbl. Analysts to the contrary, were expecting a crude oil draw of 2.79 MMBbl. The most important number to keep an eye on, total petroleum inventory levels, posted a significant build of 10.6 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 down 100 MBbl/d from last week, per EIA. Crude oil imports were down 21 MBbl/d last week, to an average of 7.7 MMBbl/d. Refinery inputs averaged 17.5 MMBbl/d (195 MBbl/d more than last week), leading to a utilization rate of 96.1%. The report is bearish due to the crude oil stocks build as well as a significantly large increase in total petroleum stocks. Prompt-month WTI was trading down $1.14/Bbl, at $67.62/Bbl at the time of writing.
Prices traded in the $68-$70/Bbl range last week. Prices were volatile at the start of the week, as WTI rose above $70/Bbl on Monday, which was followed by a sharp decline of nearly 2 percent on Tuesday. The price action on Monday was due to Saudi Arabia’s announcement last week that it would suspend shipments of oil through the Bab el-Mandeb Strait after the Houthi rebels in Yemen carried out attacks on oil tankers in the Red Sea. The sharp decline on Tuesday was triggered following a Reuters survey that showed OPEC output in July increasing by 70 MBbl/d to 32.64 MMBbl/d, a high for the year so far. Prices also were pressured by signs that supply disruption in the Bab al-Mandeb Strait in the Red Sea could soon be resolved.
The rising geopolitical tensions and worries about a supply shortage are keeping the bullish sentiment alive and strong. Questions surrounding sanctions on Iranian crude oil and rising tensions between US-Iran is one of the main factors supporting prices. Iran has also renewed its threats to block the Strait of Hormuz since the announcement of reinstating sanctions on the country’s crude supply, which brings additional support for prices. In addition to Iranian sanctions, declining Venezuelan production and supply outages in Canada are continuing to increase the supply shortage worries.
Although geopolitical tensions and supply concerns continue to support prices, the recent spike in OPEC production along with increasing Russian production working against the bullish sentiment are putting downward pressure on prices. Supporting the bearish sentiment is also the continuously increasing US production, as the EIA is showing production hovering near 11 MMBbl/d.
The trade disputes between the US and the EU have somewhat eased off after a meeting between President Trump and EU Commission President Jean-Claude Juncker; however, the on-going US-China trade war is still threatening the overall global-economic growth and oil demand. Additional news regarding any trade disputes between the US and other countries will likely contribute to volatility until they are completely resolved.
Prices in WTI may be developing a narrower trade range of between $67/Bbl and $70/Bbl as the market waits for additional news to bring a directional bias. Last week’s declines occurred with lighter volume, suggesting that the market may be entering a consolidation period. The greater range from the April lows ($62/Bbl) and the recent high ($75/Bbl) will likely hold the market for the coming weeks as traders assess longer-term fundamentals. There is a lot of potential for news to swing prices, meaning daily volatility is likely. Eventually, after the volatility recedes and consolidation commences; the quota easement, continued US growth, and possible weaker global demand growth lead Drillinginfo to believe that the supply and demand for crude may force a retracement of prices to settle in a zone of between $58 and $65/Bbl for the remainder of the year.