Crude oil has rallied strongly this week on the back of the latest industry reporting. The report signaled a continued decline in US crude stores. Price was initially shunted higher on Tuesday in reaction to the API report. It reflected a sixth consecutive weekly drawdown in US crude inventories, falling by 11 million barrels.
EIA Reports Further Drawdown in US Crude
However, it was the headline report on Wednesday from the EIA that the market was waiting for. The Energy Information Administration’s report, covering the week ending July 19th, showed that US crude stores dropped by 10.8 million barrels. This was far below the market forecast of a 4 million barrel decline. This confirmed the sixth consecutive weekly decline in US crude stores.
Elsewhere, the data showed that crude stores at the Cushing delivery hub in Oklahoma were down by 429k barrels. Overall US production was also down again last week, falling by a further 700k barrels to 11.3. Production is now down around 1 million barrels per day from recent record highs. This is largely due to the shut down in production facilities as a result of Hurricane Barry.
Summer Driving Season Hits
The report also showed that refinery crude runs were down by a large 233k barrels per day with utilization falling by 1.3%. Gasoline inventories were also down. These fell by 230k barrels per day last week, though this was less than the forecasted 730k barrel drop.
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Distillate stockpiles, which include diesel and heating oil, were also lower last week, falling by 613k barrels per day. This was greater than the 499k barrel drawdown that the market was looking for and reflects the uptick in demand for diesel due to the summer driving season in the US.
OPEC Cuts Take Hold
The continued decline in US crude inventories will be welcomed by OPEC, which recently announced an extension to its current production cuts. There have been an increasing number of reports recently, outlining concerns for the demand outlook in oil, especially heading into next year. Both OPEC and the EIA, as well as the IEA, have downgraded their demand outlook as a result of slowing world trade.
Trade Talks In Focus
However, with the US and China due to restart trade talks next week there is upside risk. Oil price was strongly higher earlier in the year due to optimism over a potential US/China trade deal. While this deal failed to materialize, leading to a fresh outbreak of trade tariffs between the US and China, there are new hopes now that both countries, in a bid to avoid economic damage, will work to deliver a deal this time around.
Crude oil has moved back under the top of the bearish channel running from 2019 highs as the rejection from 60.29 continues. Price briefly pierced above the level earlier this month, only to find strong selling pressure. The 55.79 level offered support, an is still underpinning price at this point, keeping focus on a possible move higher. If we break down from here, however, focus will shift to a test of 51.26 next and beyond that, the channel low.