Oil Continues To Rally As Crude Inventories FallOil is boosted by EIA Weekly Status Report which showed that crude inventories declined by 5 million barrels.
Oil Video 20.05.20.
EIA Report Shows That U.S. Oil Production Declined To 11.5 Million Barrels Per Day
Yesterday, API Crude Oil Stock Change report showed that crude oil inventories decreased by 4.84 million barrels.
Today’s EIA Weekly Petroleum Status report confirmed these numbers. According to EIA, crude oil inventories decreased by 5.0 million barrels.
At the same time, gasoline inventories increased by 2.8 million barrels while distillate fuel inventories increased by 3.8 million barrels.
The increase in gasoline and distillate fuel inventories can limit the traders’ joy from the decrease in crude oil inventories.
On the production side, the U.S. domestic production decreased from 11.6 million barrels per day (bpd) in the previous week to 11.5 million bpd. Thus, production fell by 100,000 bpd compared to the previous decline of 300,000 bpd.
It remains to be seen whether the market will be satisfied by the pace of the production decline. On the one hand, the continued downside trend is positive for the domestic oil market while declining inventories suggest that supply/demand balance has improved thanks to production cuts and improvements in oil demand.
On the other hand, traders would like to see a more aggressive decline of production as inventory levels remain elevated and will continue to put pressure on oil prices for the upcoming months.
OPEC Is Satisfied With The Current Progress
According to Reuters, OPEC’s secretary general Mohammad Barkindo stated that the oil markets positively responded to robust production cuts by participants of the OPEC+ deal.
That said, it is unclear whether OPEC+ will choose to keep the current production cut levels intact or supply more oil to the market in July according to the original schedule of production cuts.
The problem is that many oil producing countries rely on oil revenues to replenish their budgets, and current oil prices are not sufficient enough to provide support for their finances.
In this light, OPEC+ countries are interested in working through the backlog of inventories as fast as possible to boost prices to better levels. At the same time, the rate of oil demand recovery remains a mystery as countries have only recently started to lift virus containment measures.
The futures market remains rather sceptical about long-term upside in oil prices. The front-month July 2020 contract enjoys biggest gains, while December 2020 contract continues to trade near the $35 level.