US crude oil stocks increased 5.8 MMBbl last week. Gasoline inventories increased 1.9 MMBbl, while distillate inventories decreased 3.5 MMBbl. Yesterday afternoon, API reported a large crude oil build of 7.8 MMBbl alongside gasoline and distillate draws of 1.2 MMBbl and 3.6 MMBbl, respectively. Analysts were expecting a smaller crude oil build of 2.0 MMBbl. The most important number to keep an eye on, total petroleum inventory levels, posted an increase of 4.8 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.
US crude oil production increased 400 MBbl/d last week, per EIA. Crude oil imports were up 195 MBbl/d last week, to an average of 7.5 MMBbl/d. Refinery inputs averaged 16.4 MMBbl/d (9 MBbl/d less than last week), leading to a utilization rate of 89.4%. The report is bearish, as crude oil and total petroleum stocks both posted builds. News around Saudi Arabia and Russia may be discussing oil output cuts are giving support to prices. Prompt-month WTI was trading down $0.30/Bbl, at $61.91/Bbl at the time of writing.
Prices continued their free fall as WTI extended its losing streak to seven consecutive sessions, where the benchmark fell nearly to its seven-month lows, testing the low $62/Bbl range. Both benchmarks have fallen more than $13/Bbl since hitting their four-year highs in early October. The WTI market has now shifted sentiment to bearish, flipping from being a speculator-driven bull market due to anticipation of a supply shortage from Iranian sanctions to being a fundamentally oversupplied market due to rapidly rising supply levels.
The market had been anticipating and speculating how drastic of an effect sanctions would have on Iranian production and how this would affect the global supply levels. The expectation was that Iranian sanctions along with continuously declining Venezuelan production would cause a global supply shortage, which was one of the main factors that pushed prices to their four-year highs in early October.
The formal announcement of the re-instatement of sanctions on Monday unexpectedly pushed prices further down as the US granted waivers to eight countries, allowing them to continue importing Iranian crude for the next six months. The countries that received temporary waivers are China, India, Japan, Italy, Greece, Turkey, South Korea, and Taiwan. These countries are major purchasers of Iranian crude, with China and India being the biggest buyers. The announcement by the US government increased the bearish sentiment further, as prices have already been under immense pressure due to rapidly rising supply levels and a weaker demand.
Prices were also pressured by the latest report by EIA, where the group revised its crude oil projection for the 2018 average to 10.9 MMBbl/d and the 2019 average to 12.1 MMBbl/d. It is now certain that the market has completely shifted sentiment to bearish, as waivers are given to Iran’s largest crude buyers; Saudi Arabia, Russia, and the US have increased production to historical highs; and the global economic and demand growth are still threatened by ongoing trade wars and higher crude prices that prevailed for most of the year.
Price declines last week are an example of speculative liquidation when expectations are not realized. Closing prices declined to just above the lows from last April at $62.03/Bbl. This sent momentum indicators into the extremely over sold zone. A bounce may take prices back up to $66/Bbl, but the market has entered a “sell the rally” status. The 200-day average ($67.47/Bbl) will likely prove very strong resistance to any rally. Further declines will bring in the April lows ($62.03/Bbl), March lows ($59.95/Bbl), and the February lows ($58.07/Bbl). Drillinginfo continues to believe the long-term range will occur between $60-$65/Bbl for an extended period of time, with potential brief extensions under $60/Bbl.