Crude Oil Breaks Out on Bullish EIA Inventory Report

Crude oil prices broke on Wednesday following a report from the Department of Energy that showed a larger than expected draw in total petroleum inventories. Stocks declined in both crude oil and products, as imports move lower. U.S. domestic crude production continues to rise by the increase barely offset the loss of crude from imports. Refineries are up and running a robust rate ahead of the driving season which unofficially begins on Memorial Day.

Technicals

Crude oil prices surged higher breaking out to fresh 3-year highs and poised to test target resistance near the 50% Fibonacci retracement of the decline from 2013 to 2016 which comes in near 69.25. A break of this level would lead to a test of the 61.8% retracement at 79.50. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. The MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices.

Imports Continue to Decline

The Energy Information Administration reported that U.S. crude oil refinery inputs averaged over 16.9 million barrels per day during the week ending April 13, 2018, 70,000 barrels per day less than the previous week’s average. Refineries operated at 92.4% of their operable capacity last week. While gasoline production increased last week, distillate fuel production decreased last week.

Imports were lower which has pushed crude inventories to the lower end of the average range for this time of year. The EIA revealed that U.S. crude oil imports averaged over 7.9 million barrels per day last week, down by 720,000 barrels per day from the previous week.

Total Inventories Declined

U.S. commercial crude oil inventories decreased by 1.1 million barrels from the previous week. This compares to expectations of a flat reading. Gasoline inventories decreased by 3.0 million barrels last week, which compares to expectations that they would rise slightly. Distillate fuel inventories decreased by 3.1 million barrels last week and are in the lower half of the average range for this time of year. Total commercial petroleum inventories decreased by 10.6 million barrels last week.

Demand was strong overall, but the products were mixed. Total products demand over the last month period averaged over 20.8 million barrels per day, up by 5.7% from the same month last year. Over the last month, gasoline demand averaged 9.4 million barrels per day, up by 0.7% from the same period last year. Distillate fuel demand averaged 4.2 million barrels per day over the last four weeks, down by 2.0% year over year. Jet fuel demand is up 5.3% compared to the same month period last year.

Before the EIA number the API reported a bullish inventory report. The American Petroleum Institute reported a draw of 1.047 million barrels of United States crude oil inventories for the week ending April 13, largely in line with analysts who had anticipated a draw in crude oil inventories of 1.429 million barrels. Distillate inventories saw another draw this week of 854,000 barrels. Analysts had forecast a slightly smaller decline of 268,000 barrels. Inventories at the Cushing, Oklahoma, site rounded out this week’s draws, with the API reporting a 1.015-million-barrel draw.