Crude has been knocked lower this week as worsening global conditions and a series of forecast downgrades have trumped the latest moves in inventories data.
On Tuesday, the American Petroleum Institute reported a 7.23 million barrel decline in US crude stores. This initially boosted oil. The Energy Information Administration report then confirmed this move on Wednesday.
The EIA reported that in the week ending September 6th, US crude stores fell by a substantial 6.9 million barrels. This is more than double the forecasts for a 2.7 million barrel decline.
The data also showed gasoline inventories falling by a further 700k barrels per day. This extended declines from the 2.4 million barrel drop over the prior week.
The report was now all bullish, however, as distillate fuel inventories, which include heating and diesel, came in higher by 2.7 million barrels over the week. They thus extended the gains of 2.5 million barrels over the prior week.
EIA Ups Its US Crude Production Forecasts
The EIA also released its latest Short Term Energy Outlook.
In it, it forecast a further rise in US crude production over both this year and next. The EIA projects that US crude production will rise by a further 1.25 million barrels per day over 2019 to end the year at 12.24 million barrels per day.
The latest forecast also projects a 990k barrel rise over 2020 to take crude production in the US up to 13.23 million barrels per day.
OPEC Meeting Underway
This data will be particularly frustrating for OPEC. The oil cartel is currently meeting for the first time since June.
The relentless rise in US crude production over the year has diluted the upside price impact of OPEC’s production cuts. OPEC has been cutting oil production across its member states, and across a group of allied non-OPEC producers led by Russia, since the start of the year.
Indeed, given the fresh outbreak of trade tariffs between the US and China, as well as generally slower global economic conditions, the group announced in June that it would be extending cuts until Q1 2020. The aim of this was to counter soft demand.
OPEC Cuts Global Oil Demand Forecasts
In its latest global outlook released this week, OPEC has revised global oil demand lower once again.
They now expect demand to fall by 60k barrels per day to just 1.08 million barrels per day as of 2020. The cartel cites ongoing trade wars and worse global economic conditions as the reason for softer demand. The question now is whether OPEC will take further measures to counter this soft demand environment.
The energy minister from Iraq has said that OPEC originally discussed cuts of up to 1.6 – 1.8 million barrels per day when production cut discussions first began last year.
He claimed that the group would, of course, be discussing further options at this point. However, the Russian energy minister said that there were no fresh proposals on the table at this point (ahead of the meeting).
For now, the market is waiting to hear the outcome of this meeting, which could pave the way for deeper cuts.
The upside move in oil this week saw price briefly piercing above the bearish trend line from year to date highs. However, the 58.38 level resistance capped the move and price is now back below the trend line. For now, the market remains rangebound between resistance at the 58.38 level and support along the 51.29 base. Any topside break will see a test of the 60.50 level next while any move to the downside (breaking 51.27) could pave the way for much lower levels in oil over the medium term.