Oil Gains Ground As Crude Inventories Decline

Oil Video 16.09.20.

Crude Inventories Decrease By 4.4 Million Barrels

EIA has just provided its Weekly Petroleum Status report which indicated that crude inventories decreased by 4.4 million barrels. This is a much smaller decrease that the one indicated by yesterday’s API Crude Oil Stock Change report which showed that crude inventories declined by 9.5 million barrels.

Crude imports decreased by more than 0.4 million barrels per day (bpd) and contributed to the decrease in crude inventories. Gasoline inventories decreased by 0.4 million barrels while distillate fuel inventories increased by 3.5 million barrels.

Interestingly, U.S. domestic oil production jumped from 10 million bpd to 10.9 million bpd, exceeding levels that were seen before the temporary damage dealt by Hurricane Laura.

Hurricane Sally will put some pressure on next week’s production numbers but the market will expect that U.S. oil production will soon rebound closer to 11 million bpd.

While the EIA Weekly Petroleum Status Report was not as bullish as API Crude Oil Stock Change report, it indicated a significant decrease in crude inventories which is what the oil market needs right now.

In case crude oil inventories continue to decrease, oil will have a decent chance to settle above the $40 level. At the same time, traders should keep in mind that the support from the hurricane factor will soon be over, and oil will have to deal with the realities of demand which remains under some pressure as indicated by the recent reports from OPEC and IEA.

Hurricane Sally Shuts Down More Than 25% Of U.S. Offshore Oil Production

Yesterday, 21% of U.S. Gulf of Mexico offshore oil production was shut down due to the negative impact of Hurricane Sally. Today, production shutdowns have increased to more than a quarter of total offshore oil production.

These production shutdowns contributed to oil price strength in the recent trading sessions. However, there are indications that oil companies may quickly bring the lost barrels back to the market. For example, Murphy Oil began to restart production on Tuesday, right after the passage of Hurricane Sally.

I maintain my view that the hurricane is a temporary event whose impact on oil prices will evaporate after a couple of days.

For a look at all of today’s economic events, check out our economic calendar.