US crude oil stocks posted a decrease of 3.1 MMBbl from last week. Gasoline and distillate inventories decreased 1.7 MMBbl and 0.6 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 0.8 MMBbl, alongside a gasoline build of 1.46 MMBbl and a distillate draw of 50 MBbl. Analysts were expecting a larger crude draw of 2.0 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a decrease of 0.4 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 down 0.1 MMBbl/d last week to an average of 7.5 MMBbl/d. Refinery inputs averaged 17.3 MMBbl/d (200 MBbl/d more than last week’s average), leading to a utilization rate of 93.9%. The bullish report due to higher than expected crude withdrawal is supporting prices. Prompt-month WTI was trading up $0.34/Bbl, at $54.24/Bbl, at the time of writing.
Lingering trade tensions between the US and China, weaker demand growth, and worries over global economic health have been pressuring prices. Expectations that trade officials from the US and China would settle on an agreement on the trade disputes during the June 28-29 G20 meeting in Osaka had been fading away, which was the main catalyst driving the bearish sentiment. Prices took a sharp positive turn yesterday, increasing nearly 4% after US President Donald Trump said he would hold an extensive meeting with Chinese President Xi Jinping at the G20 meeting. Also supporting prices were Saudi Arabia’s reportedly increasing pressure on OPEC members and allies to reach an agreement on extending supply cuts and increasing tensions in the Middle East following last week’s tanker attacks, with the US planning to send more troops to the region.
The attacks last week on two tankers in the coast of Strait of Hormuz, the world’s busiest sea lane for oil shipments, triggered concerns about supply disruptions from the region; however the US – China trade tensions and gloomy economic and demand outlook had offset the supply risk price movement until President Trump’s statement that a meeting will take place with the Chinese president during the G20 meeting. It is too early to tell what the outcome from the meeting between Trump and his counterparty will be at the end of the month, as the countries have been unable to reach an agreement for months now. IEA’s new monthly report showing a down revision of demand growth by 0.1 MMBbl/d in 2019, as well as a slowing Chinese economy as a result of trade wars, will continue to keep the pressure on prices.
Market will be awaiting the outcome of the G20 meeting on the trade tensions for clarity on the demand side as well as the outcome of the OPEC meeting that will take place around the same time frame as the G20 meeting on the supply side, which will indicate whether OPEC+ will decide to extend the production cut agreement into the second half of the year. Until the results of these meeting materialize, any news on further increasing tensions in the Middle East or demand deteriorating further will be the main driver of any price movement.
The market internals maintain a consolidating trade within the new range. Last week’s trade softened the oversold conditions, as the market closed in the middle of the range on rising volume, while open interest declined. The last two weeks traded to highs of $54.63/Bbl and $54.84/Bbl, respectively, and those levels should find sellers this week. A break above those levels this week will likely challenge the area where prices broke down: between $56.00/Bbl and $57.33/Bbl. Should prices reach this range, selling should accelerate. Declines back to the lows of the past two weeks, at $50.60/Bbl to $50.72/Bbl, will find buyers just like last week. The recent range should hold without significant expansion of the conflict with Iran.