Crude Collapses After EIA Report

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Crude Stores Rise Again

Crude oil prices were sent crashing further lower yesterday as the latest industry reporting showed a continued build in US crude stocks. The weekly report from the Energy Information Administration showed that, in the week ending May 31st, US crude stores rose by 6.8 million barrels. This is in stark contrast with the market’s expectations of an 849k barrel drawdown. This latest increase means that US crude stores have now risen for three out of the last four weeks despite continued expectations for declines.

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The government has been releasing crude from its Strategic Petroleum Reserve over the last month. However, without a release from the SPR last week, crude stocks rocketed higher to 483.3 million barrels over the week. This marks their highest levels since July 2017.

US Crude Production Hits Fresh Highs

The data also showed that net US crude imports jumped by 1.1 million barrels per day last week while US crude production soared higher by another 100k barrels per day. At 12.4 million barrels day, US crude production is now sitting at fresh record highs.

The data from the EIA also showed that crude stores at the Cushing delivery hub in Oklahoma were up by 1.8 million barrels last week, hitting 50.8 million barrels. Crude stores at the site are now at their highest levels since December 2017.

Gasoline Stocks Rise

The report also showed a considerable jump in US gasoline and distillate inventories. This is atypical for this time of the year when summer driving demand usually causes a run down in refinery stocks. However, the report showed that gasoline stores rose by 3.2 million barrels over the week, far outstripping expectations of a 630k barrel gain. Similarly, distillate stockpiles, which include diesel and heating oil, also rose by 4.6 million barrels – again, far higher than the 499k barrel increase the market was looking for.

Trade War Fears Weigh on Oil

Crude has been under heavy pressure over recent weeks as rising US production has combined with demand-fears linked to ongoing US-driven trade wars. An escalation in the trade war between the US and China over the last month has hit oil prices hard as traders anticipate reduced supply as a result of weakened Chinese manufacturing output. Similarly, with the US now threatening tariffs on EU and Japanese autos imports, the demand outlook for oil has been further darkened.

OPEC Meeting Coming

The OPEC supply cuts which had been driving oil higher over the year have fallen victim to surging US crude production as well as these ballooning trade war concerns. OPEC is due to meet in the coming week and is widely expected to announce an extension to its current cuts. However, at this stage, it seems that only an increase in the level of production cuts could slow the decline in oil prices.

Technical Perspective

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Frustratingly for crude bulls, the sell-off in oil over recent weeks has seen price retracing more than half the gains made on the year. Price has broken down through some key levels on its descent and is currently sitting on the 61.8% retracement from 2018 lows. This is the last shelf of support before a lurch lower to 47.47, back under the key $50 psychological level. If price can hold here,  bulls will need to see a break back above the 54.69 level to alleviate the near term bearish bias.

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