US Rate Cut Offsets Bearish EIA Report

Inventories Soar

Crude prices have recovered on Thursday following a dip lower mid-week. This came in response to another bearish report from the Energy Information Administration. In its latest report, the EIA showed that in the week ending October 25^th, US crude stores were higher by a massive 5.7 million barrels. This rise far exceeded the 500k barrel increase projected. This also comes on the back of the API reporting a 708k barrel drawdown just a day earlier.

US Crude Imports Rise

The greater-than-expected rise in crude stores was mainly attributed to the surge in net US crude imports. These were seen higher by 1.2 million barrels across the week. Specifically, those imports coming from Canada. Alongside the jump in crude imports, the latest release from the US Strategic Petroleum Reserve has also added to inventory levels. The Department of Energy offered 10 million barrels of sour crude from the SPR for delivery between October 1^st and November 30^th. The sale was required by previous laws as part of a drive to raise money to modernize the facility.

Refinery Crude Runs Ruise

Looking at the rest of the data in the EIA’s latest report then: Refinery crude runs jumped by 133k barrels per day. Utilization rates increased by 2.5% to 87.7% of total capacity. Crude stores at the Cushing delivery hub in Oklahoma were higher again. These rose by 1.6 million barrels. This increase marks the fourth straight weekly rise in levels at the hub which is the largest in the US.

Gasoline & Distillate Inventories Down

The report was not totally bearish though. Gasoline stocks were down by 2.3 million barrels over the week. This surpassed analyst expectations for a 2.2 million barrel decline. Gasline stores have now fallen five weeks in a low, bringing levels down to 220.1 million barrels. This is the lowest level since November 2017.

Distillate stockpiles, including diesel and heating oil, were also lower by 1 million barrels across this week. While this was less than the 2.4 million barrel decline forecast, it also marks the sixth straight week of declines.

Fed Rate Cut Weakness USD, Boosts Oil

Despite the bearish report, crude prices have been able to recover into the back end of the week. This is due to USD weakness seen in response to the October FOMC meeting on Wednesday. The Fed cut rates by a further .25%, marking the third such policy adjustment this year. The move was widely expected though was accompanied by more support than the last cut. Eight members voted in favor and just 2 against (up from 7 and 3 last time).

Despite the cut, the Fed signaled that it will now be taking time to assess incoming economic data as well as monitoring external factors before making any further policy adjustments. The Fed has signaled that this is likely the last rate cut of the year. Nevertheless, USD has been weaker on the back of the cut. Traders are now looking to the US employment reports tomorrow. These could fuel further downside if we see any weakness, again, keeping crude prices supported.

Technical Perspective

The rally in crude prices stalled shortly after breaking above the 55 level and prices have since softened a little though for now, are still above 55. While above here, focus remains on a further push higher with 57.78 the next upside level to watch. Crude has been roughly trapped within the 50.85 – 57.78 range for the last six months. The stagnation looks set to continue in the short term while the market awaits a resolution on the US/China trade talks.