Oil Loses Momentum As Crude Inventories IncreaseOil is under pressure as crude inventories increased by 4.9 million barrels while U.S. oil production grew to 11.1 million barrels per day.
Oil Video 22.07.20.
U.S. Crude Oil Inventories Increase By 4.9 Million Barrels
EIA has just provided its Weekly Petroleum Status Report which showed that U.S. crude oil inventories increased by 4.9 million barrels. The market was mostly prepared to hear bad news since yesterday’s API Crude Oil Stock Change report indicated that crude inventories increased by 7.5 million barrels.
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Imports increased by less than 0.4 million barrels per day (bpd) so rising imports do not fully explain the increase in crude inventories.
Gaosline inventories decreased by 1.8 million barrels while distillate fuel inventories increased by 1.1 million barrels.
The closely watched U.S. domestic oil production increased from 11 million bpd to 11.1 million bpd. This is a sign that current oil price levels encourage more production.
The increase in crude oil inventories and the simultaneous increase in U.S. domestic oil production is a problem for oil bulls since oil has just managed to get above the major resistance level at $41.50 and tried to gain more upside momentum.
Currently, it is trying to stay above this key level but the inventory news put material pressure on the upside momentum.
The inventory increase may be a sign that demand is not rebounding as fast as expected due to problems with containing the coronavirus pandemic in the U.S. In this light, the oil market may become increasingly sensitive to vaccine news.
U.S. Secures $1.95 Billion Worth Of COVID-19 Vaccine
While the race for coronavirus vaccine is heating up, the U.S. government takes no chances and tries to secure millions of doses in advance.
It is already obvious that the world – and demand for oil – will not be able to return to normal without an effective vaccine. The U.S. has agreed to purchase millions of doses of vaccine from Pfizer and BioNTech in case they are able to develop a safe and effective vaccine.
Most likely, we’ll see similar efforts from all developed countries and many emerging countries around the world, which will provide some support to the oil market.
However, mass vaccination will not happen anytime soon so oil will need tangible evidence of near-term improvements in supply/demand balance in order to continue its upside move.
A hope-based rally will not be sustainable without a regular decline in crude inventories which continue to put pressure on oil prices.
For a look at all of today’s economic events, check out our economic calendar.