Enverus Blog

Insights across the energy value chain

US crude oil stocks posted an increase of 5.4 MMBbl from last week. Gasoline inventories decreased 1.1 MMBbl and distillate inventories increased 0.1 MMBbl. Yesterday afternoon, API reported a large crude oil build of 8.6 MMBbl, alongside gasoline and distillate builds of 0.6 MMBbl and 2.2 MMBbl, respectively. Analysts, to the contrary, were expecting a crude oil draw of 2.1 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a significantly large increase of 14.6 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

US crude oil production decreased 100 MBbl/d last week, per the EIA. Crude oil imports were up 919 MBbl/d last week to an average of 7.6 MMBbl/d. Refinery inputs averaged 16.7 MMBbl/d (271 MBbl/d more than last week), leading to a utilization rate of 90.5%. Although inventory report is bearish due to large crude oil and total petroleum stocks builds, prices were mixed due to API reporting a larger crude inventory build and rising tensions in Middle East. Prompt-month WTI was trading up $0.04/Bbl, at $61.82/Bbl, at the time of writing.

Prices traded in the $61/Bbl to $62/Bbl range last week as they continued to face pressure mainly due to the US–China trade wars while getting support from the rising geopolitical tensions in Middle East as well as continuously declining Venezuelan production.

The announcement by the US government on raising tariffs on $200 billion worth of Chinese goods from 10% to 25% had already renewed worries about global economic and demand growth. Trade tensions escalated, further pressuring prices even more after China announced on Monday that it would raise tariffs on $60 billion of US goods to as high as 25% in retaliation for the tariff increase by the Trump administration. The escalating trade tensions between the two powerhouses have brought down the stock market as well, which also affected crude futures.

As prices see tremendous pressure from the US–China trade wars and a gloomy outlook for economic and demand growth, rising geopolitical tensions in the Middle East limited the decline in prices. The attack over the weekend on two Saudi crude tankers off the coast of the United Arab Emirates lifted prices as the attack happened near the strategic port of Fujairah close to the Strait of Hormuz, which is a very critical channel for global crude trade. Worries over a possible supply threat increased further on Tuesday after Saudi Arabia reported that “ armed drones ” attacked two pumping stations in the country. The events came just days after the US government stated it would send aircraft carriers and bombers to the area due to increased threat from Iran.

It is unclear what OPEC’s decision will be in terms of supply cuts, and the decision will most likely depend on Iranian production and global supply–demand levels in July as OPEC gears up for their meeting. Until then, both bearish and bullish headlines and rising geopolitical tensions and their potential impact on oil supply will most likely cause volatility and be the main drivers for prices. Any significant gains in prices will be capped by gloomy global economic and demand growth projections and continuously increasing US production.

Prices may continue to trade in a narrow range as the market seeks a fundamental reason to extend out of the range. Should prices extend beyond the range, it will likely be met with tremendous volatility. A break below $60.77/Bbl on a daily close will likely set up additional declines to the $57/Bbl–$58/Bbl area from early March. A break above $64.75/Bbl will likely take prices back up to the high end of the range at $67.00/Bbl.

Petroleum Stocks Chart

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