US crude oil stocks posted a very large decrease of 9.5 MMBbl from last week. Gasoline inventories decreased 1.5 MMBbl, and distillate inventories increased 3.7 MMBbl. Yesterday afternoon, API reported a large crude oil draw of 8.1 MMBbl alongside a gasoline draw of 0.26 MMBbl and a distillate build of 3.7 MMBbl. Analysts were expecting a smaller crude draw of 3.1 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a decrease of 3.8 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 0.3 MMBbl/d last week, to an average of 7.3 MMBbl/d. Refinery inputs averaged 17.4 MMBbl/d (0.1 MMBbl/d more than last week’s average), leading to a utilization rate of 94.7%. The report is bullish and supporting prices due to large and higher than expected crude oil and total petroleum stocks withdrawals. Prompt-month WTI was trading up $1.53/Bbl, at $59.36/Bbl, at the time of writing.
Prices recovered some of their losses from Friday and have been trading in the narrow $57-$58/Bbl range as intensifying geopolitical tensions and OPEC+ production cuts are offsetting the concerns over global economic and demand growth. The tensions between the US and Iran have been supporting prices because the situation also threatens the major oil transportation channel, the Strait of Hormuz. The tensions increased further this past week as Iran threatened to restart its deactivated centrifuges and increase its uranium enrichment, plus the British Royal Marines seized an Iranian crude tanker. In addition to heightened tensions in the Middle East and concerns about disruptions in the Strait of Hormuz, prices are also supported by reports that Russia’s oil production in early July was down to its lowest in nearly three years. Geopolitical tensions, OPEC+ supply cuts and declining production from Venezuela and Iran will continue to support prices; however, the lingering trade disputes between the world’s two largest economies, the US and China, and faltering global economic growth will continue to pressure prices. Although the trade truce between the US and China gave some hope to the market that a deal can be reached between the countries, the existing tariffs and disappointing factory and manufacturing growth from Europe and Asia could potentially further deteriorate demand growth and increase the pressure on prices. Continuously increasing US production is also another catalyst that will keep prices in check, in addition to the gloomy economic and demand growth.
Prices will likely continue to consolidate in the recent range – between $56.00/Bbl and $60.00/Bbl – as the market digests the struggle between the Middle East tensions, the lack of global demand growth and the Fed’s decision on possible interest rate cuts. It is unlikely that the geopolitical tensions and demand concerns will be resolved quickly, and this recent range and the broader range – $50/Bbl to $64/Bbl – may hold prices until the market resolves the competing issues later in the year.