The rally in crude prices this week was tempered by the latest industry reporting which showed a further rise in inventories. The Energy Information Administration’s weekly report showed that US crude stockpiles, in the week ending March 1st, rose by 7.1 million barrels. This was wildly above the expected 1.2 million barrel increase. At 452.9 million barrels, the report noted that crude inventories are about 4% above their seasonal average.
Stockpiles at the Cushing delivery hub in Oklahoma rose by 873000 barrels to sit at 47.5 million barrels. Stockpiles have now risen for three consecutive weeks.
The data was not all bearish though. Gasoline inventories declined by 4.2 million barrels over the week, far surpassing expectations of a 1.9 million barrel draw. Similarly, distillate fuel inventories were down 2.4 million barrels, marking a strong expansion on the prior week’s 300k barrel decline.
US Crude Production Remains At Record Highs
The report also noted that refinery runs remained roughly the same at 15.9 million barrels. This was slightly down from the prior week’s 16 million barrels.
Crude production remained at record highs of 12.1 million barrels per day. Meanwhile, net US crude imports rose by a further 1.6 million barrels per day. Gasoline production climbed again to 9 million barrels per day, up from 9.6 million a week earlier. As for distillate fuel, production rose 4.9 million barrels per day just up from the prior week’s 4.8 million barrel reading.
OPEC Cuts Keep Oil Supported
Despite the news, however, which would usually send crude prices lower, oil has remained firm this week. Price action has been underpinned by ongoing OPEC supply cuts, which are having a visible, supportive effect on prices.
In a note released midweek, US investment bank Goldman Sachs said:
“In our view, OPEC’s strategy is to rebalance the market as quickly as possible and exit the cuts by the end of June in order to grow production alongside shale producers in the second half of this year.”
Trump’s Sanctions Boost Oil Also
Furthermore, US sanctions on Iran and Venezuela are also helping to keep prices supported. This week, the state-run Venezuelan oil firm PDVSA declared a maritime emergency. It noted that it is having difficulty accessing tankers and personnel needed to export its oil due to ongoing US sanctions.
Such a development highlights the duality with which Donald Trump operates. On the one hand, he is consistently calling on OPEC and Saudi Arabia in particular, as the cartel’s biggest producer, to produce more oil in a bid to keep prices lower.
On the other, oil prices are shooting higher as a direct result of policy decisions he has made. The fact that US oil production continues to climb to fresh record highs seems to be no coincidence. US production is now up more than 2 million barrels per day since early 2018 when Trump first started calling for lower oil prices.
Despite oil prices remaining bid at current levels, bullish momentum has certainly waned. Upward moves over the last two months have been labored. Price is still capped by structural resistance at the 58.12 level. And there is plenty more overhead suggesting that there will need to be a major shift in the supply and demand environment to drive prices meaningfully higher from here. Indeed, the risk of a move lower continues to build.