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Insights across the energy value chain

US crude oil stocks posted a decrease of 0.3 MMBbl from last week. Gasoline inventories increased 2.2 MMBbl, and distillate inventories decreased 1.6 MMBbl. Yesterday afternoon, API reported a crude oil draw of 5.3 MMBbl, alongside a gasoline build of 2.7 MMBbl and a distillate draw of 2.1 MMBbl. Analysts were expecting a crude oil draw of 0.9 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a decrease of 1.6 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 down 81 MBbl/d last week to an average of 6.9 MMBbl/d. Refinery inputs averaged 16.8 MMBbl/d (189 MBbl/d more than last week’s average), leading to a utilization rate of 91.2%. The smaller than expected crude oil inventory withdrawal is pressuring prices. Prompt-month WTI was trading down $0.47/Bbl, at $58.34/Bbl, at the time of writing.

Smaller Than Expected Crude Oil Inventory Withdrawal is Pressuring Prices

Prices have been volatile as of late, but they recovered some of their losses after plunging to their two-month lows last week. The potential continuation of supply cuts into the second half of the year by OPEC, rising tensions in the Middle East, and declining Iranian and Venezuelan production are still keeping a strong floor for prices. However, the never-ending and progressively deteriorating US–China trade wars continue to put tremendous pressure on prices.

The meeting between OPEC and other producing countries last weekend gave some hope to the market on the possible extension of supply cuts into the second half of the year. Although the official decision will be made during OPEC’s next meeting, which is scheduled for the last week of June, Saudi Arabia Energy Minister Khalid al-Falih’s stance on being in favor of rolling over the existing cuts have been supporting prices. The disappointing US and global manufacturing data as well as US–China trade wars entering a new phase last week wiped out any bullish sentiment from al-Falih’s comments and pushed prices to their two-month lows last week.

Prices continue to see pressure based on the concerns about global economic and demand growth, as China recently signaled its willingness to escalate the existing trade war with the US by hinting at restricting the exports of rare earths to the US. Rare earths are a group of chemicals used in everyday electronics and military equipment. Although this has not yet been officially announced by China, the news rekindled the worries of a pro-longed trade war between the world’s two largest economies effecting economic and demand growth. Moving forward, the rising geopolitical tensions as well as declining production from Iran and Venezuela will continue to keep the floor up while trade wars continue to pressure prices.

The support area that held during late March and April will now find sellers for prices in the near term. A break back above that support area, on a daily close, will usher in a new range, between $57.33/Bbl (last week’s low) and $63.81/Bbl (where price runs found selling last week). A follow-through on the breakdown will send prices to where they were in early March, between $56/Bbl and $57/Bbl, which became the base for the recent run. While much of the long speculation was forced to cover last week (after the CFTC data), there remains a bid in the market due to the geopolitical unrest. Regardless of the two-directional sides to prices, higher volatility should be expected in the coming weeks as the market digests the geopolitical circumstances.

Petroleum Stocks Chart

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