US Crude Stores Post Largest Fall Since September 2016

Inventories Fall Again

Oil prices traded higher again yesterday in response to the latest industry reporting which showed a further drawdown in US crude stores last week. The API report on Tuesday indicated such movement in inventories. This was then confirmed yesterday by the weekly report from the Energy Information Administration.

The report showed that in the week ending June 21^st, crude inventories fell by a massive 12.8 million barrels. This decline was over five times the expected 2.5 million barrel decrease the market was looking for. The statistics office of the Department of Energy confirmed that the moves were the largest increase since September 2016.

US Crude Exports Hit New Record

Elsewhere, the report showed that net US crude imports decreased by 1.2 million barrels per day. Net exports jumped by 3.8 million barrels per day. This beat the prior 3.6 million barrel per day record set in February. Refinery runs were also seen rising by 73k barrels per day over the week with refinery utilisation rates edging higher by 0.3% to 94.2% of total capacity.

Gasoline Stocks Down

Gasoline stocks were seen falling over the week by 996k barrels which was in stark contrast to the expected 288k barrel gain forecast ahead of the release. Distillate stockpiles, including diesel and heating oil, were down by 2.4 million barrels. This is again in contrast to the expected 522k barrel increase the market was projecting.

Middle East Tensions Keeping Crude Supported

In all, the report was solidly bullish and helped keep crude prices supported as they continue their run-up back towards $60. They fell just short at $59.92 yesterday before softening a little so far today.

Crude has been well supported over recent weeks due to rising tensions in the Middle East as the standoff between the US and Iran continues. Following the downing of a US spy plane by Iran, the US president initially reacted by calling an airstrike. This was then later canceled ahead of execution. On Monday however, Trump announced fresh sanctions on Iran. This time aimed at the country’s supreme leader as well as other key senior figures. Given Iran’s opposition to the sanctions, the prospect of military conflict remains elevated.

Upcoming OPEC Meeting in Focus

Looking ahead, the market will next be focusing on the July 1^st/2^nd meeting of OPEC. The OPEC production cuts initiated at the start of the year drove a sizeable rally in oil before the impact of surging US crude production and a fresh escalation of the US/China trade war took its toll. There is now speculation that the group will announce an extension of those cuts at the upcoming meeting which would again put upward pressure on oil prices.

Technical Perspective

The rally in oil has seen prices breaking back above the 58.04 level with the market now sitting just below big technical confluence at the 60.12 level where we have structural resistance and bearish trend line resistance from the 2019 highs. A break higher here could open the way for a test of the 63.83 level much higher. Any further flaring of tensions between Iran and the US could easily drive such a move in the near term.