US crude oil stocks decreased 6.1 MMBbl last week. Gasoline and distillate inventories decreased 2.3 MMBbl and 0.1 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 3.16 MMBbl, alongside a gasoline and distillate draws of 4.87 MMBbl and 1.32 MMBbl, respectively. Analysts, were expecting a crude oil draw of 2.3 MMBbl. The most important number to keep an eye on, total petroleum inventory levels, posted a sizable draw of 9.7 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.
US crude oil production was estimated to be up 18 MBbl/d from last week, per EIA. Crude oil imports were down 1.29 MMBbl/d last week, to an average of 7.8 MMBbl/d. Refinery inputs averaged 17.3 MMBbl/d (46 MBbl/d more than last week), leading to a utilization rate of 93.8%. The report is bullish due to higher than expected crude oil and large total petroleum stocks withdrawal. Prompt-month WTI was trading up $0.55/Bbl, at $69.07/Bbl at the time of writing.
Prices traded in the $68-$70/Bbl range last week. US-Iran relations was the main element affecting market sentiment over the weekend and early in the week. President Trump’s tweet addressed to Iranian President Rouhani had a strong tone almost hinting at war and warned Iran to be cautious which was in response to Rouhani’s earlier comments, that stated “war with Iran would be mother of all wars, while peace with Iran is mother of all peace”. On Tuesday, Iran responded to Trump’s tweet by dismissing his all-caps message and warning the US to be cautious, further escalating the tensions between the US and Iran.
The tweet war has certainly escalated the existing tensions between the US and Iran to a new level and further increased bullish sentiment, supporting prices. The worsening US-Iran relations, declining Venezuelan production and possible supply loss due to Iranian sanctions will be supporting prices moving forward. Working against those factors will be the increasing US production, a possible weaker global demand growth due to higher crude and gasoline prices, and commitments from Russia and Saudi Arabi to increase production.
Another factor that will keep the pressure on prices is the US-China trade war, as the situation threatens global-economic growth and demand. It will be interesting to see, as the year end approaches, how much the Iranian sanctions will affect supply, and how much more crude Saudi Arabia and Russia bring back to the market to offset the declines from Venezuela and Iran.
With prices for WTI reversing off the previous highs and now starting to test support zones, the high end of the current trade range has likely been established at the recent high ($75.27). Last week’s trade followed expectations, testing the late June lows around $67.00. With the news continuing to wreak havoc on traders, price action will continue to be volatile, similar to last week’s action. Should prices garner enough bearish strength, expect potential levels around $62.00 (early April lows) to come into play. Eventually, after the volatility recedes and consolidation commences; the quota easement, continued US growth, and a possible weaker global demand growth lead Drillinginfo to believe that the supply and demand for crude may force a retracement of prices to settle in a zone between $60 and $65.
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