Oil pulls back from daily highs after inventories rise

Summary:

  • EIA Crude Oil inventories: +2.8M vs -1.2M exp

  • First build in 3 weeks and above API (+1.9M)

  • Oil pulls back from near-term resistance at 67.75

 

The weekly oil inventory data from the US has shown an unexpected build after two consecutive drawdowns, causing the crude markets to pull back from their highest levels of the day. The print of +2.8M is comfortably above the -1.2M expected, and also last night’s API reading of +1.9M. The rise comes after last week saw a massive drawdown of 9.6M. The subcomponents of the release were as follows:

 
  • Gasoline: -2.8M vs -3.0M exp

  • Distillates: -2.1M vs -1.0M exp

  • Refinery utilisation: -2.3% vs +0.5% exp    

The drops in the Gasoline and Distillates does soften the blow of the rise in the headline, but a quite a sizable fall in refinery utilisation could be seen to suggest decreased demand. On balance this is a mildly negative release for the price of Oil, but not a major game-changer. Looking at comparisons to recent years the current level of inventories is still just below the 5-year average even after the latest rise.  

Oil inventories are just below the 5-year average still, with the current year being fairly remarkable in how steady US stock piles have been. Source: xStation

 

For the past 6 weeks there hasn’t been too much movement in the price of Oil, with the market consolidating after a strong run higher at the start of the year. Price has remained in a broad range from 64.00-68.45 since the middle of February, with the latest foray higher finding some resistance around 67.75. The supply side of the market often creates the sharper moves in the near-term but there is some suggestion that OPEC+ cuts aren’t having as big an impact as desired with compliance not brilliant and record high levels of US production also mitigating their impact. On the demand front, softening manufacturing data suggests a slowdown in global activity and this could be seen to not bode well for the price of Oil going forward. A break out of this $4.50 range could be seen as significant and may well lead to another sustained move.   

 

Oil has been trading in a 450 tick range for the past 6 weeks, pulling back a little after the latest inventory build. Source: xStation

 

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