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US crude oil stocks decreased 1.4 MMBbl last week. Gasoline and distillate inventories increased 2.9 MMBbl and 1.2 MMBbl, respectively. Yesterday afternoon, API reported a crude oil draw of 6.0 MMBbl, while reporting gasoline and distillate builds of 3.1 MMBbl and 1.80 MMBbl, respectively. Analysts were expecting a smaller crude oil draw of 3.33 MMBbl. The most important number to keep an eye on, total petroleum inventory levels, posted a build of 3.3 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 down 100 MBbl/d from last week, per EIA. Crude oil imports were up 182 MBbl/d last week, to an average of 7.9 MMBbl/d. Refinery inputs averaged 17.6 MMBbl/d (118 MBbl/d more than last week), leading to a utilization rate of 96.6%. Smaller-than- anticipated declines in crude oil stocks as well as increasing total petroleum stocks are pressuring prices. Prompt-month WTI was trading down $2.47/Bbl, at $66.70/Bbl at the time of writing.

Prices traded in a tight range of $68 to $69/Bbl last week. US sanctions on Iran, rising geopolitical tensions, and US-China trade wars continue to dictate the sentiment and price action in the market.

Prices got some additional support on Monday, as President Trump signed an executive order restoring sanctions on Iran. The first round of sanctions targets trade in the metals, aerospace, and automaking industries, along with barring the sale of the dollar to the Islamic Republic’s government and outlaw the purchase of its sovereign dept. The US government has made it clear that more sanctions will be put in place in November, which is when the crude sanctions will be announced as well. The reinstitution of Iranian sanctions – although anticipated – surely increased the bullish sentiment and worries of a global supply shortage due to upcoming sanctions on Iranian crude.

Although it is now expected that Iran will lose some supply due to upcoming sanctions, it is still unclear how much supply the country will lose. For sanctions on Iran to impact the supply levels drastically, other countries besides the US would also need to reinstitute sanctions. Currently, China and Europe are not too happy with the US government’s decision to bring back the sanctions and do not seem too keen about jumping on board to support the decision. If sanctions do not impact the supply levels drastically, the additional production from OPEC and Russia and increasing US production will continue to put pressure on prices.

The current market setup by its participants indicates long-term volatility in response to any kind of headline news. The market still has a distinct bullish bias and will be susceptible to any moves by the managed money speculators. WTI continues to trade in a narrow range between $67/Bbl and $70/Bbl and is waiting for the next headline. The greater range from the April lows ($62/Bbl) and the recent high ($75/Bbl) will likely hold the market for the coming few weeks, until traders start to accurately assess longer-term supply-and-demand fundamentals. Eventually, after the volatility recedes and consolidation commences; the quota easement, continued US growth, and 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 of between $58 and $65/Bbl for the remainder of the year.

Petroleum Stocks Chart

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