Inventory draw sees Oil make steady gains

Summary:

• Crude Oil inventories -2.1M vs -2.7M exp; -5.3M prior

• Print below API (+1.3M). US production rises back to 11M bpd

• Oil makes steady gains but remains below key resistance

The latest inventory figures for US crude oil have shown another drop, but the decline was less than the consensus forecast and also the prior reading. The EIA headline number came in at -2.1M to mark a 5th consecutive decline but it should be pointed out that it was also above both the expected -2.7M according to a survey of analysts and the previous reading of -5.3M. Last night’s private API figure showed a print of +1.3M and perhaps because this may have impacted trader’s expectations heading into today’s number as the initial market reaction was positive although a little muted to the upside.

Oil has gained since the DOE release but the reaction is far from clear cut with some pretty choppy trade evident. Source: xStation

This year has seen a prolonged slump in US inventories compared to previous years, with the level seen in 2018 the lowest of the decade if we base each year at 100 to begin with. Only 2017 even comes close as the only other year that have seen inventories lower at this point compared to the start of the year. A 5-year rolling average is considerably higher and shows that overall inventories have tended to rise throughout the year.

This year has been the lowest at this point in time so far this decade for US inventories if they are based at 100 from the beginning of the year. Source: XTB Macrobond

In addition to the headline inventory number there are also several components of the report which can determine how oil reacts, with the following listed in the format of actual vs expected unless otherwise stated:

• Gasoline: -1.7M vs +0.1M

• Distillate inventories: +0.8M vs +1.5M

• Refinery utilisation: -2.2% vs -0.8%

• Production: 11 mbpd vs 10.9 mbpd prior

In particular here the rise in production could be seen as negative for price with this metric once more moving up to its highest level in several decades. Overall this release leaves a fairly mixed picture short term for oil and this has been reflected in the market reaction. The bigger picture for the market is more clear however with resistance around 80.50 still a key line in the sand.  

The daily chart of Oil shows that the market remains in a range and below key resistance around 80.50. Source: xStation