US crude oil stocks posted an increase of 2.2 MMBbl from last week. Gasoline inventories increased 0.8 MMBbl and distillate inventories decreased 1.0 MMBbl. Yesterday afternoon, API reported a crude oil build of 4.9 MMBbl, alongside a gasoline build of 0.8 MMBbl and a distillate draw of 3.4 MMBbl. Analysts were expecting a smaller crude oil build of 80 MBbl. The most important number to keep an eye on, total petroleum inventories, posted a sizable increase of 9.3 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 0.3 MMBbl/d last week to an average of 7.6 MMBbl/d. Refinery inputs averaged 17.1 MMBbl/d (126 MBbl/d more than last week’s average), leading to a utilization rate of 93.2%. Prices sharply fell this morning due to another rise in crude oil and total petroleum stocks. In addition to continuously rising crude stocks the global economic growth concerns due to US–China trade war is also keeping the pressure on prices. Prompt-month WTI was trading down $1.31/Bbl, at $51.96/Bbl, at the time of writing.
Prices last Wednesday dipped to their lowest level since January due to significant petroleum stocks and crude oil builds as well as intensified global economic and demand growth concerns due to possible US tariffs on Mexican goods. Prices made up some of their losses on Friday due to remarks made by Saudi Energy Minister Khalid al-Falih, and have been trading relatively flat since, being pulled in opposite directions with a potential OPEC supply cut extension and concerns about the health of global economy and demand growth due to US–China trade wars.
Khalid al-Falih’s comments ahead of the official OPEC meeting, which is scheduled to take place in early July, have been the main catalyst for the price support, as he said that OPEC and its allies should extend oil production cuts and that OPEC was close to an agreement. He also said that Russia was the only oil exporter still undecided on the need to extend the output deal agreed on by top producers. Although Russia still seems to have not agreed to extending the cuts, Russian energy minister Alexander Novak’s comments sent mixed signals to the market in terms of where the country stands for the deal. Novak on Monday said that there is still a risk that oil producers pump out too much crude and prices fall sharply. He also said that he could not rule out a drop in oil prices to $30/Bbl if the global deal was not extended. In addition to al-Falih’s comments and expectation of the cut extension, prices have been getting support by the removal of the possible US tariffs on Mexican goods due to a deal between US and Mexico to combat the illegal migration at the border.
The ongoing trade tensions between the world’s two largest economies, the US and China, will continue to pressure prices even as they have already made an impact on the Chinese economy, and could further impact the overall global economic and demand growth. US President Donald Trump said the additional $200 billion of tariffs will be imposed following the G20 meeting unless the trade negotiations are finalized between the US and China. The expectation that OPEC and its allies will extend the supply cuts into the second half of the year will be working against the economic growth concerns and supporting prices.
Regardless of the preliminary jitters around supply cut extensions, prices maintain a distinctly bearish bias. Evidence is starting to mount that the US equity market and WTI move in the same direction, with both of these directly correlated to economic growth in the US and globally. Last week’s late gains were also met with a significantly lower dollar index, with further gains in US Treasury (10-year). Traders are still spooked by the current global markets, and the announcement from US Federal Reserve Chairman Jerome Powell, hinting at a possible rate cut, does little to bestow a bullish spin on growth in the markets. This outlook may be a catalyst to the equity/risk markets in the near term. A break above last week’s high ($54.63/Bbl) should carry the run to the key area from two weeks ago, between $56/Bbl and $57.33/Bbl, where the selling should intensify. Declines back to $51.23/Bbl and to last week’s lows of $50.60/Bbl will find significant buying. The market may be developing a new range between $50/Bbl and $57/Bbl for the near term as we head into the OPEC meeting and the G20 summit, which may bring news regarding the US and China tariff standoff.
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