US Crude Stocks Surge Higher

Crude Inventories Rally

Crude prices have been fighting to reclaim some higher ground this week. However, the rally was capped on Wednesday by the latest report from the Energy Information Administration. The EIA reported that in the week ending February 7^th, US crude inventories rose by a further 7.5 million barrels. This increase was well above the 2.3 million barrels forecast by the market. The figure takes total inventory levels to 435 million barrels.

The data comes on the back of the API reporting a 6 million barrel inventory increase and sees inventory levels extending recent surpluses. The EIA has now reported three consecutive weekly increases in inventory levels with 3.4 and 3.5 million increases seen over the last two weeks.

Gasoline & Distillate Stockpiles Fall

Elsewhere, the data showed that gasoline inventories fell by 100k barrels last week. This was in stark contrast to the 546k barrel increase forecast by the market. Distillate inventories, including diesel and heating oil, were also lower by 2 million barrels. This was far deeper than the 55k barrel decline forecasts and sees distillate inventories running down to 143.2 million barrels.

The data also showed that refinery crude runs were higher by 48k barrels last week. Refinery utilization rates were higher by 0.6%. Net US crude imports also rose by 806k barrels over the last week.

Despite the data this week, which has weighed on crude prices, oil has generally had a better week. The asset has benefitted from better risk sentiment. The outbreak of the coronavirus has weighed on crude prices over recent weeks due to expectations of reduced demand. However, this week, the market seems to be displaying more optimism towards the virus which has mainly only seen deaths in China.

EIA Reduces US Crude Production Outlook

The latest Short Term Energy Outlook Report was released a day ahead of the inventories this week. In the report, the EIA lowered its US crude-production outlook. The EIA now forecasts crude production of 13.2 million barrels. This is down 0.8% from the last forecasts. 2021 production forecast was lowered by 1.1% also. Despite the lowered production forecasts, with crude demand forecast to fall also, crude prices are forecast to end the year around $55.71. This is 6% lower than the prior forecast.

Technical Perspective

Crude prices continue to range within the contracting triangle forming at the foot of the recent declines. Price is clinging to the 51 level for now though the outlook remains skewed to the downside. If price breaks below here the next level to watch is the 47.68. If price breaks to the topside, the 53.70 level is the next zone to watch.