Inventories Break 15 Weeks Of Surpluses
In its latest update, the Energy Information Administration reported an unexpected drop in US crude inventories. For the week ending May 8th, the EIA reported that US crude stores dropped by 745k barrels.
This was in stark contrast to the 4.1 million barrel increase the market was looking for and comes on the back of 15 straight weekly increases. This is now the first drop in inventory levels since the COVID-19 crisis began back in January.
Regionally, inventory levels at the Cushing delivery hub in Oklahoma, which is the largest in the US, fell by 3 million barrels. Despite the drop, the hub is still over 80% in terms of storage capacity.
Fuel demand, measured via the total-products supplied figure, was up last week. Despite that, the reading is still around 23% lower than the two-year average for the last four-week period.
Get our Weekly Commitment of Traders Report: - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.
Get Our Free Metatrader 4 Indicators - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter
US Crude Production Falls Further
Encouragingly for bulls, the report noted that US crude production dropped by a further 300k barrels over the week to 11.6 million barrels per day. This means that US crude production is now down at its lowest level since December 2018. This has, therefore, reversed the rampant increases we’ve seen over the last 18 months.
Refinery crude runs were higher by 593k barrels per day over the week amidst refinery utilization rates dropping by 2.6% to 77.9% of capacity. At this level, capacity is not far off all-time lows.
Gasoline Stocks Fall Again
Gasoline stocks fell last week as well. This marks the third straight week of declines as motor demand continues to rebound amidst the easing of lock-downs in the US.
Gasoline stores were lower by 3.5 million barrels over the week to 252.9 million barrels in total, marking a sharper drop than the 2.2 million barrel decline forecast.
Distillate stockpiles, however, including diesel and heating oil, were still up on the week. There rose by 3.5 million barrels to 155 million barrels. This was well above the 2.9 million barrel increase forecasted.
Risk Sentiment Flattened As Fed Disappoints
Despite the report, crude prices remain stubbornly flat this week amidst a weakening in risk sentiment. Risk assets have been lower as concerns over the health of US/China relations continue to build.
Comments by Fed chairman Powell also weighed on risk appetite this week as Powell shot down any talk of negative rates in the US. This came despite warnings over the “lasting harm” to the economy as a result of COVID-19.
Crude Holding Below Key Resistance
The breakout above the 19.76 level has stalled ahead of the 28.94 resistance. However, while price holds above the 19.76 level, focus remains on further upside and an eventual break higher. To the topside, the key level to watch will be the 34.82 structural resistance with the bearish trend line coming in just below. If price can breakout above here this will likely set up a much broader recovery.