US crude oil stocks posted an increase of 1.6 MMBbl from last week. Gasoline and distillate inventories decreased by 1.4 MMBbl and 1.9 MMBbl, respectively. Yesterday afternoon, API reported a crude oil build of 3.7 MMBbl, while reporting a gasoline build of 3.7 MMBbl and a distillate draw of 1.3 MMBbl. Analysts, to the contrary, were expecting a crude draw of 2.8 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted an increase of 2.4 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.
US crude oil production remain unchanged last week, per the EIA. Crude oil imports were up 0.57 MMBbl/d last week, to an average of 7.7 MMBbl/d. Refinery inputs averaged 17.3 MMBbl/d (0.48 MMBbl/d less than last week’s average), leading to a utilization rate of 94.8%. Prices drop due to crude oil and total petroleum stocks inventory build. Prompt-month WTI was trading down $2.37/Bbl, at $54.73/Bbl, at the time of writing.
Prices soared nearly 5% on Tuesday due to easing US-China trade tariff issues, with the additional US tariffs on Chinese goods being delayed, making up some of the losses seen in the first week of August. The beginning of August, until yesterday, has been tough on prices, as WTI fell nearly to the $50/Bbl level due to the Trump administration’s announcement of additional 10% tariffs on $300 billion of Chinese goods and further deteriorating US-China tariff issues, which raised the concerns about the health of global economic and demand growth once again.
Prices got some support following the decline to near $50/Bbl after Saudi Arabia once again reassured the market that the Kingdom is ready to do whatever it takes to increase prices. Saudi Arabia last week said that it plans to chat with other OPEC producers to discuss additional steps to bring a balance to the market and said that the country would limit its crude exports below 7 MMBbl/d in August and September to drain crude inventories to prompt prices, as the Kingdom is still seeking a higher price environment before the IPO of Saudi Aramco.
The news from Saudi Arabia and their willingness to continue with supply cuts have certainly supported prices; however, the significant uptick in prices yesterday, the largest daily increase of the year, was due to the announcement by the US that it would delay imposing a 10% tariff on certain Chinese products. These products include laptops and cellphones, and the tariffs will be put in place in December instead of September. The announcement eased some of the concerns about the global economy and demand taking higher tolls than they already have. The US-China trade war has been one of the major catalysts of weakening economic health and demand growth, putting immense pressure on prices. Given the state of the US-China trade wars, any positive news surrounding this issue gives some hope to the market, but only time will tell whether the world’s two largest economies can ever reach a deal or make any progress in this prolonged trade war.
Even with the substantial fall and recent rebound of WTI prices in the past couple of weeks, the market continues to trade in a range between $50/Bbl and $61/Bbl. The announcement of delayed tariffs on Chinese goods does not change the already gloomy economic and demand outlook. Until a deal is reached, US-China trade wars will keep the pressure on prices. Reaching and possibly breaking the higher side of the range will depend on further bullish news from Saudi Arabia and additional substantive aggression by Iran, forcing a conflict. Should China cease buying oil from the US in retaliation for the tariffs and reinitiate buying oil from Iran, the global market could be flooded going into an already oversupplied 2020. This event would pressure prices below the key $50/Bbl area, possibly taking prices down to December ’18 levels of around $47/Bbl and the same month’s lows of $42.36/Bbl.