Oil remains near recent highs as US production hits record

Summary:

• EIA inventories: +3.7M vs +3.1M exp

• US production hits record high of 12M bpd

• Oil remains around the $67 mark in mixed reaction

The weekly crude Oil inventories have been released 1 day and half an hour later than usual this time out due to the US bank holiday for Presidents day on Monday and shown a fifth consecutive build. The rise of 3.7M barrels was larger than the consensus forecast of +3.1M and also higher than last week’s +3.6M reading. In fact, this is the 2nd largest build out of the last 5. Furthermore last night’s private API number showed a smaller rise of 1.3M so whichever way you look at it this is pretty high. However, the headline reading only provides a snapshot for this release with several of the components just as important in determining market reaction, none more so than the weekly US production number.

Here there was more bad news for Oil bulls, with US production increasing to its highest level on record in coming in at 12M bpd. This rise in production has been one of the biggest themes on the supply side of the market in recent years and it’s showing little sign of letting up. The Shale oil revolution has been behind this major increase, and even the sharp drop seen in the oil price in 2014/15 seemingly only provided a temporary pause in what has been a strong and clear uptrend that shows little sign of ending anytime soon.  

US Oil production increased further in the past week, moving up to its highest level on record. Source: Bloomberg

In addition to the two aforementioned figures, there are also several subcomponents worth mentioning, with the following listed as actual vs expected:

Gasoline: -1.5M vs -0.5M

Distillates: -1.5M vs -1.5M

Refinery utilisation: 0.0% vs -0.2%

The big picture for Oil remains fairly constructive from a technical point of view, even if the fundamentals both in terms of supply and the global economy appear less supportive. The inverse head and shoulders mentioned previously remains valid above the 63.65 level and for the time being most indicators point to the market being in an uptrend. With 6 of the last 7 candles (not counting today’s) green, it’s clear that bulls remain in control of the tape for now and until there’s a daily reversal then there’s little to go on for shorts.

The chart for Oil remains constructive and while it may be overbought in the near-term the market appears to remain in an uptrend with a possible inverse head and shoulders setup in-play. Source: xStation