Crude Oil Breaks Out as Declining Saudi Exports Trump a Rise in Inventories

 

Crude oil prices were higher on Wednesday, breaking out above trend line resistance despite a larger than expected increase in petroleum inventories. It appears that the Saudis plan to curtail crude oil exports and keep them below 7-million barrels per day in May, according to the Energy Ministry, as part of their commitment to restore inventories back to the normal levels. This will continue to dwarf U.S. production increases which continued to rise this week. The Saudi’s May crude allocations were kept under 7-million barrels per day, despite nominations at higher than April demand, as seasonal demand rises, in line with that plan.

Technicals

Crude oil prices surged following the Saudi’s report, breaking out above resistance at 66.66 which is now seen as short-term support. Additional support is seen near the 10-day moving average which is back in the range at 64.06. The next level of resistance is seen near the 50% Fibonacci retracement of the drop from the highs in 2013 to the lows in 2016 which comes in near 69.24. Momentum has turned positive as the MACD (moving average convergence divergence) index generate a crossover buy signal. This occur as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

Imports Declined as Refiner Operations Increased

The trend continues to show that imports are declining while refineries are accelerating operations. The Energy Information Administration (EIA) reported that over the last month, crude oil imports averaged over 7.9 million barrels per day, 1.5% less than the same month last year. Distillate fuel imports averaged 125,000 barrels per day last week.

The EIA revealed that U.S. crude oil refinery inputs averaged over 17.0 million barrels per day during the week ending April 6, 2018, 83,000 barrels per day more than the previous week’s average. Refineries operated at 93.5% of their operable capacity last week. Gasoline production increased last week, averaging 10.2 million barrels per day. Distillate fuel production increased last week, averaging 5.3 million barrels per day.

Inventories Increased More than Expected

The Department of Energy reported that U.S. commercial crude oil inventories increased by 3.3 million barrels from the previous week. Expectations were for a small draw. At 428.6 million barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year, and the trajectory is pointing to a further decline. Gasoline inventories increased by 0.5 million barrels last week, compared to expectations of a small decline. Distillate fuel inventories decreased by 1.0 million barrels last week compared to expectations of unchanged stocks. Total commercial petroleum inventories increased by 6.0 million barrels last week.

Demand Remains Very Strong

Total products demand surged last week, but was mixed. Demand averaged 20.7 million barrels per day, up by 5.0% from the same period last year. Over the last month, gasoline demand averaged 9.3 million barrels per day, down by 0.6% from the same period last year. Distillate fuel demand averaged 4.1 million barrels per day over the last four weeks, down by 3.6% from the same period last year. Jet fuel demand is up 4.3% compared to the same four-week period last year.

API Also Reports Build

The American Petroleum Institute reported a surprise build of 1.758 million barrels in crude oil inventories for the week ending April 6, after analysts had anticipated a draw in crude oil inventories of 189,000 barrels. The API reported this week a build for gasoline for week ending April 6 of 2.005 million in gasoline stockpiles another surprise given the 1.425-million-barrel draw that analysts had expected.