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US crude oil stocks posted a decrease of 3.1 MMBbl from last week. Gasoline and distillate inventories increased 3.6 MMBbl and 5.7 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 1.4 MMBbl alongside a gasoline draw of 0.48 MMBbl and a distillate build of 6.2 MMBbl. Analysts were expecting a larger crude draw of 2.7 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a very large increase of 11.7 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

US crude oil production decreased 400 MBbl/d last week (due to Gulf of Mexico shut-ins), per the EIA. Crude oil imports were down 0.47 MMBbl/d last week, to an average of 6.8 MMBbl/d. Refinery inputs averaged 17.3 MMBbl/d (0.17 MMBbl/d less than last week’s average), leading to a utilization rate of 94.4%. Although crude oil withdrawal is higher than expected, large total petroleum stocks build is pressuring prices. Prompt-month WTI was trading down $0.28/Bbl, at $57.34/Bbl, at the time of writing.

Escalating tensions in the Middle East between the US and Iran and the impact of Tropical Storm Barry on Gulf of Mexico production had pushed prices above the $60/Bbl level last week, and prices traded in the narrow range of $59-$60/Bbl until the beginning of this week. Prices started declining on Monday, falling nearly 1%, and sharply declined on Tuesday, dropping nearly 4% due to bearish factors, creating a perfect storm. IEA’s newest report, released on Friday, stated that in the first half of 2019, demand grew at the slowest pace since 2011, due primarily to the contraction in manufacturing. Meanwhile, global oil stockpiles grew in the first half of 2019, with world supply exceeding demand by 0.9 MMBbl/d in spite of the OPEC+ reductions. The report and the warning by IEA about a possible supply glut in 2020 certainly increased the bearish sentiment. Prices also got support on signs that the impact of Barry on Gulf of Mexico production would be short-lived, as producers are already starting to resume operations. Two other catalysts that pushed prices down nearly 4% were; Chinese industrial output and retail data showing the country’s slowest quarterly economic growth in decades and the potential easing of tensions between the US and Iran following remarks by US President Donald Trump and US Secretary of State Mike Pompeo. The disappointing Chinese data dimmed an already gloomy outlook for global economic growth and appetite for crude demand, pushing prices down further. Pompeo’s statement on Iran being prepared to negotiate on its missile program eased the fears of a military conflict arising and tensions further increasing between the countries, which potentially could have impacted supply from the Strait of Hormuz.

OPEC+ production cuts and the increasing tensions in the Middle East, potentially threatening supply from the Strait of Hormuz, have been driving the bullish sentiment. Prices could see further pressure due to the bearish IEA report and thawing tensions between the US and Iran, offsetting these bullish elements for the time being. Continuously increasing US production, along with the increasing bearish elements in the market, could initially take prices down to $56.00/Bbl, where prices will likely find support. However, further thawing of US – Iran tensions, as well as additional data showing weakening global economic growth, could push prices to levels below $55.00/Bbl.

Petroleum Stocks Chart

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