Oil Rally Pauses As Crude Stocks Rise Again

Oil prices turned a little lower mid-week this week as the latest industry report showed a further build in US crude stockpiles. The rally in crude prices hit pause on Tuesday as the weekly report from the American Petroleum Institute indicated a further build in stockpiles.

The Energy Information Administration on Wednesday then confirmed this view. The EIA report showed that in the week ending April 5^th, US crude stores were up 7.03 million barrels. The reading, which comes on the back of the prior week’s 7.24 million barrel gain, was starkly in contrast to the 2.29 million barrel drawdown forecast by the market. US crude stores are now sitting at a 17-month high as of last week.

Crude stores at the Cushing delivery hub in Oklahoma were down by 1.1 million barrels over the week. The data also showed that refinery crude runs rose by 251k barrels per day as refinery utilization rates ticked up by 1.1%.

Gasoline Inventories Still Falling

The report from the EIA also indicated that US gasoline inventories fell by 7.1 million over the week. This marks their 8^th consecutive week of losses, despite forecasts for a 2.01 million barrel drawdown. The data also showed that distillate stockpiles, which include diesel and heating oil, fell by116k barrels over the week. This was, however, far less than the forecast 1.3 million barrel drawdown.

EIA Forecasts Further US Oil Production Increases

Alongside this week’s regular weekly report, the EIA also updated its 2019 Oil outlook. The group now forecasts US crude production to grow by 1.43 million barrels per day over the year. This will then average 12.39 million barrels per day, a fresh record high for US crude output. The outlook is an upward revision from the group’s prior forecast of a 1.35 million barrel per day rise over the year.

Looking beyond this year, the EIA forecasts 2020 US crude output to rise by 710k barrels per day to 13.10 million barrels per day. That being said, this forecast is slightly lower than the prior projection. This latest outlook from the EIA projects that the US will reach the 13 million barrels per day milestone by the second quarter of 2020. This comes as the US has now overtaken Saudi Arabia and Russia as the biggest global oil producer.

Libya Oil Disruption

Despite the bearish report, oil prices continue to plow higher this week. And the market remains underpinned by ongoing OPEC production cuts. The market has also received upside pressure this week from news of the political disruption in Libya as rebel forces advanced on the capital. The rebels are now in control of oil fields responsible for more than 50% of the country’s output. This, of course, is raising concerns over supply levels.

OPEC Extension

OPEC is reportedly considering extending the current 6-month production cuts when it meets for its next briefing in Vienna in June. An OPEC report released in March showed that oil output was down by around 534k barrels per day in March as production dropped to a four-year low.

News that they might extend production cuts might is keeping speculative buyers interested at these levels with oil continuing to push higher.

Technical Perspective

The higher time frame chart shows just how rampant this crude move has been. With oil breaking above several key structural levels in recent weeks, price is now testing the 64.25 level. A weekly close above here puts focus on the 67.73 level next.

The H4 charts show crude continuing to trade within the bullish channel which has framed price action since late March. A break of the channel low will bring structural support at 61.78 into play. However, we are likely to see focus remain on further upside from here.