Oil Rallies As Inventories Increase Less Than Expected While U.S. Oil Production Continues To Fall
Oil Video 29.04.20.
U.S Oil Companies Start Using Strategic Petroleum Reserve
According to a recent Bloomberg report, the U.S. companies have already started to use the Strategic Petroleum Reserve to store oil. Yesterday, oil-storage related fears put pressure on oil at the beginning of the trading session, but then oil got scooped by speculative traders who believe that oil is too cheap to ignore.
In the long run, there’s no chance that oil will stay in the range between $10.00 and $20.00 since this price level will push too much production out of the market and the price will be forced to correct to the upside.
However, the short-term picture is different as oil prices are driven mostly by traders’ estimates on how much oil storage is left. The U.S. has just reported its first-quarter GDP numbers, and the hit to economy was harder than expected.
The equity market ignores the bad data as it believes that Fed will solve all problems by money-printing, but oil traders have to deal with a physical product that has suffered huge demand destruction. In this light, the first-quarter GDP data, which showed a contraction of 4.8%, does not look promising for oil demand in the U.S.
Inventories Increase Less Than Expected
Yesterday, API Crude Oil Stock Change showed an increase of 10 million barrels. The report was better than expected and provided a major boost to oil prices. Possibly, tired oil traders are simply hungry for any “better than expected” news on the oil front.
EIA Weekly Petroleum Status Report has just been released, and it was also better than expected since it showed that U.S. commercial crude inventories increased by 9 million barrels from the previous week.
Currently, it is very important to track not only inventories but the pace of the decline in U.S. production. The U.S. oil production decreased to 12.1 million barrels per day (bpd) compared to the previous week’s level of 12.2 million.
Domestic oil production continues to fall, and this is a supportive factor for WTI oil since the decline in production is absolutely required to reach any kind of a reasonable supply/demand balance and avoid filling all available storage.