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US crude oil stocks posted a large increase of 7.0 MMBbl from last week. Gasoline and distillate inventories decreased 7.7 MMBbl and 0.1 MMBbl, respectively. Yesterday afternoon, API reported a crude oil build of 4.1 MMBbl alongside gasoline and distillate draws of 7.1 MMBbl and 2.4 MMBbl, respectively. Analysts were expecting a crude oil build of 2.3 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted an increase of 4.1 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

US crude oil production remained unchanged last week, per the EIA. Crude oil imports were down 0.16 MMBbl/d last week, to an average of 6.6 MMBbl/d. Refinery inputs averaged 16.1 MMBbl/d (251 MBbl/d more than last week), leading to a utilization rate of 87.5%. Price rally that paused due to a lower economic growth forecast from the International Monetary Fund (IMF) and Russia stating it does not support extending supply cuts continued today, despite the bearish inventory report as crude oil and total petroleum stocks both posted sizeable gains. Prices are getting support from the unrest in Libya potentially threatening its oil supply and continuing OPEC supply cuts. Prompt-month WTI was trading up $0.21/Bbl, at $64.19/Bbl, at the time of writing.

Prices continued their climb early into this week as WTI hit its five-month high on Monday and edged near the $65/Bbl mark, while Brent reached the closely watched $70/Bbl mark. However, bearish news on Tuesday brought an end to the rally, as prices gave up some of their gains after bearish news from the IMF and Russia.

Continuing OPEC+ production cuts and further declines from Venezuela and Iran due to unrest and sanctions continued to support prices. Prices rallied to their fresh five-month highs on Monday, largely on the concerns about lower production from Libya, as the Libyan National Army launched a campaign to take over Tripoli. Although it is too early to assess what this means for the country’s oil supply, the possibility of lower production due to unrest pushed prices higher as global supply levels are already tightening. Also supporting prices were the US-China trade talks coming to an end for the time being and officials stating progress is being made.

Although sentiment has completely shifted to bullish with tightening supply levels and news from Libya, prices retracted from their five-month highs quickly due to worries about global economic growth and Russia’s comments on easing the supply-cut deal. A threat by the US government to impose tariffs on European goods as well as IMF lowering its global economic growth forecast, once again brought back the fears of a slowdown in global economic and demand growth. Russian Energy Minister Alexander Novak said an extension of supply cuts would be unnecessary if the market were expected to be balanced in the second half of the year, which signals Russia may not be willing to participate in further reductions and could potentially increase production even if OPEC decides to proceed with supply cuts after June.

Last week’s trade closed over $63.00/Bbl, the highest weekly close since the last week of October 2018, just before the market declines accelerated. Market internals have developed a bullish bias, however, and are now entering overbought levels. The trade may extend the gains and test the $65/Bbl range but will need more bullish headlines to support this level before it finds some selling. The market will closely watch any news surrounding Iranian sanctions, Libyan supply levels, and US-China trade talks. Any slight shift in sentiment due to fundamentals or bearish news could cause a consolidation phase, with a potential retracement back to the $60/Bbl range.

Petroleum Stocks Chart

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