Oil Video 08.07.20.
Crude Oil Inventories Unexpectedly Increase
Yesterday, API Crude Oil Stock Change report indicated that crude oil inventories increased by 2.05 million barrels.
Today, EIA Weekly Petroleum Status report showed that inventories experienced a bigger increase of 5.7 million barrels. Meanwhile, gasoline inventories decreased by 4.8 million barrels while distillate fuel inventories increased by 3.1 million barrels. This is not something you’d expect to see during the driving season.
The U.S. domestic oil production remained flat at 11 million barrels per day (bpd) which shows that the U.S. oil industry has found some balance at current prices near $40 per barrel.
The main reason for the increase in crude inventories was the increase in imports. According to EIA, imports jumped by 1.4 million bpd to 7.4 million bpd. It looks like some oil which was previously stored on tankers is finding its way to the market as the spread between the front-month contract and longer-dated contracts has almost disappeared.
In my opinion, this is not a bullish report. Crude inventories continue to increase while U.S. domestic production has stabilized at 11 million bpd. The main hope of oil bulls right now is the continued optimism of the global markets.
EIA Increases Its Oil Price Forecast For The Second Half Of 2020
In its Short-Term Energy Outlook, EIA indicated that it had changed its price forecast for both Brent and WTI.
EIA expects that Brent spot prices will average $41 per barrel at the second half of this year and climb to $50 per barrel in 2021. The forecast for the second half of 2020 is higher than the previous one by $4 per barrel, while the forecast for 2021 exceeds the previous forecast by $2 per barrel.
Meanwhile, EIA believes that WTI prices will not be able to average $50 per barrel in 2021 and expects that U.S. oil production will stay at 11 million bpd in 2021.
EIA notes that high inventory levels will limit price gains but expects that inventory levels will decline in the second half of 2020 and through 2021. As we have just seen in the Weekly Petroleum Status Report, this process has not yet begun.
The main risk for oil prices right now is the return of serious virus containment measures. Australia’s Melbourne has entered its second lockdown, Serbia wants to impose a curfew, while Central Asian countries like Kazakhstan and Uzbekistan are reversing their reopenings.
The oil market may not pay attention to these developments right now because they do not include oil’s biggest consumers but the trend is alarming and should be closely monitored by oil traders.
For a look at all of today’s economic events, check out our economic calendar.