Inventories Surge Higher
It’s been another tough week for crude oil. Despite the broader recovery in risk markets, as equities and commodities continue to climb off the recent lows, oil prices remain hemmed in by low demand.
The Energy Information Administration had another dismal report for the market this week. In the week ending April 3rd, the EIA reported that US crude oil inventories rose by 15.2 million barrels. This increase was well above expectations of a 9.2 million-barrel increase. This marks the largest weekly increase on record.
EIA Highlights Falling Oil Demand
The report noted that US demand for fuel has cratered over recent weeks falling by one third over the last three weeks. Last week, demand was seen falling by 3.4 million barrels per day. This was the largest weekly fall in demand recorded by the EIA.
In its report, the EIA highlighted the drastic action being carried out by refiners and oil producers as they adjust to the new climate. US refinery activity was operating at just 75.6% of capacity last week. This is the lowest level recorded since mid-2008. Furthermore, production has been cut by 600k barrels per day to 12.4 million barrels per day over the week.
Gasoline Stocks Soar
Elsewhere in the report, the EIA noted that US gasoline inventories were higher by 10.5 million barrels. This marks an almost record-breaking increase high. Supply of gasoline products over the week, which measures demand, showed a decrease of 24% to just 5.1 million barrels per day. Regionally, the Gulf Coast saw the worst performance. There, output fell to just 82% of capacity, its lowest level since the disruption caused by Hurricane Harvey in 2017.
Distillate stockpiles, including diesel and heating oil, rose last week also but by a comparatively minor 500k barrels. Distillates have been less affected by the disruption. This is due to the continued operations in the trucking and farming sectors which have been less disrupted.
EIA Slashes 2020 Production Outlook
Amidst the ongoing chaos caused by the coronavirus crisis, the EIA has now revised its 2020 production forecasts. These have been lowered by 20%. In its Short-Term Energy Outlook released a day ahead of the inventories data, the EIA now forecasts crude to end the year at just $29.34 a barrel. This is down a further 23% from the last forecast made in March. The EIA also forecasts production of just 11.76 million barrels per day this year, down 9.5% from the prior forecast.
Oil Falls Back Below Key 26 Level
After piercing back above the broken 26 level following the rebound off the supporting trend line, oil prices have since fallen back below the level. In light of the heavy sell-off over the last month, while price holds below 26, a further breakdown is likely with the 17.12 and 10.72 levels the next downside regions to watch. To the topside, any rally higher will put focus on a test of the bearish trend line from year to date highs ahead of structural resistance at the 38.29 – 42.39 levels.