Massive DOE build sends Oil back below $72 handle

Summary:
DOE weekly inventory change: +9.9M vs +1.3M exp
Largest build in almost 6 months; Production reaches record high
Oil price falls lower in response. Back below $72 handle 

The crude oil markets have been driven lately by speculation surrounding the Iranian sanctions and their implementation and what impact this could have on the supply side of the market buit elsewhere a monster build in the weekly inventory figures from the US accompanied by record levels of production have put pressure back on the market. A weekly build of 9.9M is the highest read for the headline DOE figure since November 8th, and while there has been some volatile trade since the news hit on the whole it seems to be attracting sellers into the market.  

Looking at the report in more detail the following were announced for the subcomponents:

  • Gasoline: +0.9M vs -1.0M exp
  • Distillates: -1.3M vs -0.8M exp
  • Cushing: +0.3M vs +0.5M exp
  • Refinery utilisation: -0.9% vs +0.5% exp
  • Crude Oil production: +12.3M bpd - A new record high!  

The most noteworthy read here is the level of production which rose once more to a new record high of 12.3M. On the whole the other subcomponents are pretty much a wash, but the high headline and rising production make it a pretty negative report overall for the price of crude. 

The long-term picture for Oil is a little mixed at the moment with high levels of uncertainty surrounding the Iranian output situation. After a large decline on Friday there is some suggestion that the market could have put in a near-term peak and today’s data supports this narrative. In addition to the DOE report we’ve also had some soft manufacturing figures from the US in the latest ISM print, and coming just a couple days after the Chinese equivalent disappointed there is a feeling that the global economy is slowing - something which doesn’t bode well for the demand side of the crude oil equation. 

ISM manufacturing fell to its lowest level in a couple of years according to the latest release and the drop supports data from elsewhere in pointing to a slowdown in global activity - something that is not good for crude oil demand. Source: XTB Macrobond  

The longer term view of Oil suggests we could be near an inflection point with the 8 and 21 EMAs converging of late, with a negative cross should it occur seen as a possible signal of the end of the uptrend that has been in place since the start of the year. The region around 70.60 could be seen as key support while recent highs of 74.75 could be viewed as potential resistance. Source: xStation

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