Crude oil extended its bearish run this week, printing a fourth losing week as the latest data from the Energy Information Administration showed the US crude oil inventories rising for their sixth consecutive week.
The report from the EIA showed that in the week ending October 26, crude inventories rose 3.2 million barrels, mainly fuelled by the 1.9 million barrel increase at the Cushing, Oklahoma delivery hub. While this latest rise marks the sixth consecutive weekly gain, it was less than the forecast 4.1 million which shows that there has been a shift in the market’s expectations.
The data also showed that net US crude imports were down by 639k barrels per day last week while exports rose by 305k barrels per day showing that there is still strong global demand for US oil despite reduced domestic demand.
Distillates Down Again
Distillate stockpiles, including diesel and heating oil, were down 4.1 million barrels, far lower than the forecast 1.4 million barrel drop while gasoline inventories also fell by 3.2 million barrels, again, dropping further than the expected 2.1 million barrel drawdown.
The rise in US crude oil inventories has helped bring price lower from the highs it reached last month on expectations of reduced supply linked to the US sanctions on Iran. The sanctions, set to go live next week, are expected to wipe around 1 million barrels per day offline.
However, the US Department of Energy (DOE) has said that it is preparing to offer around 11 million barrels of oil for sale from the country’s Strategic Petroleum Reserve ahead of the sanctions going live, in a bid to further against the loss of supply.
Oil Supply Reaching Record Highs
In anticipation of the loss of supply, OPEC has been pushing for its member nations to up their oil output along with non-OPEC members Russia and the US. Its seems this drive is now finally having some success with oil production among the top three producers (Russia, Saudi Arabia, and the US) now sitting at record highs of 33 million barrels per day over September, showing a 10million barrels per day increase since 2010. Indeed, Russian oil supply has now hit 11.41 million barrels per day which is a level of output not seen since the Soviet Union collapsed in 1991.
Trade War Concerns Still Weigh
With oil output increasing, the impact of the loss of supply from Iran looks set to be absorbed quite well and consequently; market attention is elsewhere. Indeed, it seems that the bearish impact of the ongoing US / China trade war is playing a stronger role in determining price direction than the expectations of reduced supply from Iran. The US currently has $250 billion worth of Chinese goods under tariff while China has $110 billion of US goods under similar tariffs.
The ongoing trade conflict has seen risk appetite dramatically affected over recent weeks with global equity markets suffering significant declines, also weighing heavily on oil.
Technical Perspective
Price action in oil is now starting to look very toppy and with price approaching key technical support at the 61.81 – 63.31 structural lows (with rising trend line from 2016 lows just beneath) we are at a clear fork in the road. If price breaks these levels, we could see an exacerbated downside run while if price holds support at these levels, we are likely to see some stagnation and consolidation with focus on further upside remaining intact while price continues to trade the broad bullish channel currently in play.