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US crude oil stocks posted a decrease of 4.0 MMBbl from last week. Gasoline and distillate inventories decreased 0.6 MMBbl and 0.2 MMBbl, respectively. Yesterday afternoon, API reported a crude oil build of 2.8 MMBbl, while reporting gasoline and distillate draws of 2.8 MMBbl and 0.8 MMBbl, respectively. Analysts were expecting a crude oil build of 0.8 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a decrease of 1.7 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 721 MBbl/d last week, to an average of 6.7 MMBbl/d. Refinery inputs averaged 16.4 MMBbl/d (41 MBbl/d less than last week), leading to a utilization rate of 88.9%. The crude oil and total petroleum stocks draws supported the prices and halted prices’ downward move. The US-China trade talks will be pressuring prices while the rising geopolitical tensions will give support prices. Prompt-month WTI was trading up $0.68/Bbl, at $62.08/Bbl, at the time of writing.

Prices had been under pressure in highly volatile trade the last couple of weeks and fell to their five-week lows on Tuesday, mainly due to increasing trade tensions between the US and China following US President Donald Trump’s comments on Sunday. The US sanctions on Venezuelan and Iranian crude exports as well as increasing tension between the US and Iran have been supporting prices.

Although the US government’s announcement on the cancellation of Iranian sanction waivers and bringing Iran exports to zero pushed prices to their six-month highs, crude futures have been under siege the last couple of weeks due to US inventory levels increasing significantly, as well as the market’s realization that the lost Iranian barrels will most likely be offset with increasing production from OPEC producers and Russia. Other catalysts that have kept the pressure on prices were the gloomy global economic and demand growth projections, in which US-China trade disputes played a large role in. Trump’s comments on Sunday renewed doubts over US-China trade wars and increased concerns once again over global economic and demand growth. Trump on Sunday said that he would raise tariffs on $200 billion worth of Chinese goods from 10% to 25% by this Friday, in addition to affecting the overall economic growth sentiment, his comments dragged down both Asian and US stock markets.

Bearish sentiment certainly has increased in the last couple of weeks. However, prices are still getting support from declining production levels in Venezuela and Iran. Prices are also being supported by rising geopolitical tensions between the US and Iran and the possible threat of further supply disruptions from the region, as the US is deploying a carrier strike group and a bomber task force to the Middle East to send a message to Iran that any attack on US interests or its allies will be met with “unrelenting force,” US national security adviser John Bolton said on Sunday. The rising geopolitical tensions between the US and Iran as well as renewed concerns over global economic growth due to US-China trade tensions will keep the prices volatile in the short term.

It is unclear what OPEC’s decision will be in terms of supply cuts, and the decision will most likely depend on Iranian production and global supply-demand levels in July as OPEC gears up for their meeting. Until then, both bearish and bullish headlines and rising geopolitical tensions will most likely cause volatility and be the main driver for prices. Any significant gains in prices will be capped by gloomy global economic and demand growth projections and continuously increasing US production.

Prices have consolidated, as expected, and are now facing some critical support levels that will need to hold before the market develops a negative bias. The first area is the 200-day moving average at $60.95. This is a commonly traded average for the speculative sector, and a close below it (on a daily basis) will likely bring about additional selling and profit taking. These declines may take prices down to the breakout levels, between $57/Bbl and $58/Bbl, from early March. Should the critical support level hold and prices catch a bid (as they did early Friday), $62.52/Bbl, and up to last week’s high of $64.75, will likely find substantive selling. The market may be entering a period of volatility and range expansion, depending on the extent of the rebound off of the support test.

Petroleum Stocks Chart

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