Inventories Rise Again
Crude prices were heavily lower on Wednesday as the latest report from the Energy Information Administration showed a further rise in US crude stores. The reaction to the news was particularly heavy. This is because the American Petroleum Institute reported a 6 million barrel drawdown only the day before.
Despite the API reading, the EIA report showed that in the week ending September 27th, US crude stores were higher by 3.1 million barrels. This level was almost twice the forecasted 1.6 million barrel increase the market was looking for.
Refinery Runs Drop
The main driver behind the large increase in US crude inventory levels was a much lower level of refinery runs which fell by 496k barrels per day. This decrease saw refinery utilization rates dropping by 3.4% on the week.
Gasoline Stores Down
However, the report was not all bullish. The EIA showed that US gasoline inventory levels fell by 288k barrels over the week. This was in stark contrast to the forecasted 449k barrel gain the market was looking for. Similarly, distillate inventories, which include heating and diesel oil, were lower by 2.4 million barrels. This outstripped market expectations for a 1.8 million barrel drop.
Elsewhere, the report showed that net US crude imports were higher by 29k barrels per day. Crude stores at the Cushing delivery hub in Oklahoma were lower by 216k barrels.
US Economic Concerns Adding Pressure
Crude oil prices have also been under pressure this week. This has come from renewed concerns over the health of the global economy. Following a set of miserable Eurozone manufacturing PMIs last week, US manufacturing data released this week showed the factory sector hitting a 10 year low of September. The ongoing impact of the US/China trade war is being seen across the globe. Yesterday, the UK reported that its manufacturing sector is also sitting in contractionary territory.
ARAMCO Restores Oil Output Capacity
Further bearish pressure this week came from the announcement by ARAMCO that its Saudi Arabia oil production was now back to full capacity. This is following the drone strike on the largest global processing site two weeks ago. The attack, which was attributed to Iran, wiped around 5% of global oil supply offline and caused a 20% spike higher in crude. This was its largest ever one day gain.
The technical picture in crude is looking precarious. Following the failure at the 60.39 level (which was briefly pierced on the drone-strike spike), crude prices have since reversed lower. They are trading back under the bearish trend line from year to date highs. Price is now quickly approaching key structural support at the 50.71. If we break below here, this could see a push as deep as the 42.54 level. Alternatively, if we hold above the 50.71 level, we can expect further consolidation. However, risks remain tilted to the downside in the near term.