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Larger Than Expected Inventory Withdrawal Supports The Price Rally

US crude oil stocks posted a decrease of 8.5 MMBbl from last week. Gasoline and distillate inventories decreased 1.8 MMBbl and 0.9 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 6.0 MMBbl alongside gasoline and distillate draws of 3.1 MMBbl and 0.89 MMBbl, respectively. Analysts were expecting a smaller crude draw of 1.8 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a very large decrease of 10.1 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

US crude oil production increased 900 MBbl/d last week (due to Gulf of Mexico production coming back on-line), per the EIA. Crude oil imports were down 0.37 MMBbl/d last week, to an average of 6.7 MMBbl/d. Refinery inputs averaged 17.0 MMBbl/d (43 MBbl/d less than last week’s average), leading to a utilization rate of 93.0%. The larger than expected crude oil and significant total petroleum stocks withdrawals are supporting the price rally. Prompt-month WTI was trading up $0.46/Bbl, at $58.51/Bbl, at the time of writing.

Prices last week traded in the tight range of $56/Bbl-$57/Bbl, being pulled in both directions by lingering tensions in the Middle East and concerns over global economic and demand growth worries. However, crude futures rose sharply on Tuesday and broke the $58/Bbl level on expectations that the US Federal Reserve will cut interest rates for the first time in more than a decade, giving confidence for economic and demand growth in the US. The tensions remain high around the Strait of Hormuz, escalating further last week as Iran declined to release the British-flagged oil tanker it seized. The concerns over supply disruptions in the Strait of Hormuz, where about a fifth of the world’s oil passes, will continue to support prices, especially after the US asked Germany to join France and Britain in securing the transportation through the channel to combat any altercations by Iran. Even though tensions continue to escalate around the Strait of Hormuz, the price reaction to the events have been limited due to persistent concerns about global economic health and demand growth as well as disappointing manufacturing data and growth from Asia and Europe. The main catalyst driving the concerns for global economic growth is the US–China trade dispute, which still poses a threat to the global economy even after the truce agreed upon during the G20 meeting. US and Chinese officials will be meeting in Shanghai this week for the first time since the G20 meeting to discuss a path forward; however, expectations for any progress from the meeting are very low and the trade wars will most likely continue to pressure prices and limit any significant price gains.

Since the latter days of May, prices in WTI have remained in a range between $50/Bbl and $61/Bbl. The Mideast disruptive activities are more likely to have an impact in the coming weeks, as the global economic woes will take longer to work out. The interest rate cut expectations have extended prices to the higher side of that range, but additional bullish news will be required for prices to edge near $61/Bbl level. Without a full-scale conflict with the Iranians, the market has shown the tendency to downplay the actions which will mean aggressive selling at $61/Bbl. Should Iran and the US develop some sort of negotiation platform, thereby easing the tensions, there is a strong probability that $50/Bbl will be tested.

Petroleum Stocks Chart