Oil Managed To Stay Above $37 Despite Worries About Demand

Oil Video 11.09.20.

U.S. Domestic Oil Production Rises To 10 Million Barrels Per Day

The latest EIA Weekly Petroleum Status Report, which was published on Thursday, indicated that crude inventories increased by 2 million barrels, 1 million barrels less than indicated by API Crude Oil Stock Change report which showed a crude inventory build of roughly 3 million.

Gasoline inventories decreased by 3 million barrels while distallate fuel inventories declined by 1.7 million barrels.

Imports increased by 0.5 million barrels per day (bpd) and averaged 5.4 million bpd, playing a major role in the total increase of crude inventories.

Meanwhile, the U.S. domestic oil production has started to recover from hurricane-related shutdowns.  Oil production increased from 9.7 million bpd in the previous week to 10 million. Production is still below the pre-hurricane level of 10.8 million bpd.

It should be noted that U.S. oil producers have significant experience with re-starting production after hurricanes so domestic oil production will soon come back closer to previous levels.

In this light, oil demand growth is required to avoid an increase in inventory levels which will be bearish for oil. Unfortunately for bulls, the latest data on gasoline demand is not inspiring.

Gasoline Demand Continues To Drop

EIA reported that U.S. gasoline demand declined from 8.79 million bpd to 8.39 million bpd in the week ending September 4, 2020. In the week ending August 21, 2020, gasoline demand was 9.16 million bpd so it suffered a very significant decline in just several weeks.

Some analysts believe that the previous decline in gasoline demand (from 9.16 million bpd to 8.79 million bpd) was caused by hurricanes and the related disruption, but the second significant decline in a row is very disturbing for the bulls.

A year ago, gasoline demand stood at 9.81 million bpd, so current demand is lower by as much as 1.42 million bpd.

At this point, oil is trying to stabilize after the major sell-off so it may temporarily ignore the developments on the gasoline demand front as it recovers from an oversold condition. Longer-term, the softness of gasoline demand may present a serious problem for the oil market.

While the gasoline demand data is alarming, it remains to be seen whether oil will be able to get below the recent lows in the upcoming trading sessions as oil did not have any material pullback since early June and many traders have likely waited for an opportunity to scoop oil futures contracts at lower prices.

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