Oil Mixed As U.S. Domestic Production Drops Sharply

Oil Video 17.06.20.

U.S. Domestic Oil Production Drops By 600,000 Barrels Per Day

EIA has just released its Weekly Petroleum Status report, and it contains very interesting developments.

Things were relatively quiet on the inventory front: crude oil inventories increased by 1.2 million barrles, gasoline inventories decreased by 1.7 million barrels while distillate fuel inventories decreased by 1.4 million barrels.

Yesterday’s API Crude Oil Stock Change report, which showed that oil inventories increased by as much as 3.8 million barrels, was not confirmed by the EIA data. Typically, API and EIA reports contain different oil inventory numbers, and the market prefers to use EIA data.

The most interesting part of the report is the new data on U.S. domestic oil production. According to EIA, domestic production declined from 11.1 million barrels per day (bpd) in the previous week to 10.5 million bpd.

This is a major production cut which should improve the situation on the inventory front unless oil imports suddenly increase. Yesterday, I wrote that the amount of domestic oil production might be a bigger catalyst than inventories, and it turned out that this expectation was correct since oil got a material boost right after the publication of the EIA report.

OPEC Expects That Oil Demand Will Decline By 6.4 Million Bpd In The Second Half Of 2020

OPEC has released its monthly report and provided updates on the current situation in the oil market. OPEC believes that the hit to oil demand in the first half of the year was 11.9 million bpd while it expects that oil demand will decline by 6.4 million bpd in the second half of the year.

It looks like OPEC expects no miracles and is prepared to deal with the gradual rebound of oil demand. The main potential negative catalyst for OPEC’s demand forecast is a second wave of the virus in the world, especially in the top oil-consuming countries.

At this point, it’s hard to quantify such risk so it’s not surprising that OPEC evaluates the current situation “as is” without taking into account the possibility of additional virus containment measures.

While the equity market has mostly ignored worries about the second wave of the virus, oil is more sensitive to virus-related headlines, and it looks like it may need additional catalysts to get above the psychologically important $40 level.

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