Oil Stays Below $40 Despite Significant Crude Inventory DrawEIA reports that crude oil inventories have declined by 7.2 million barrels.
Oil Video 01.07.20.
U.S. Domestic Oil Production Stays Flat At 11 Million Barrels Per Day
The U.S. Energy Information Administration has just provided its Weekly Petroleum Status Report. According to EIA, crude oil inventories decreased by 7.2 million barrels. This decrease was much bigger than analysts expected.
Imports were down by 0.6 million barrels per day (bpd), contributing to the inventory draw. Gasoline inventories increased by 1.2 million barrels while distillate fuel inventories decreased by 0.6 million.
In general, this was a solid inventory report since it showed that crude oil inventories have finally started to decrease. However, the decline in imports played a major role in the total inventory draw so the report is not as bullish as it could have been.
In addition, the U.S. domestic oil production remained flat at 11 million bpd. It looks like oil producers have found some balance at current oil price levels, and the downside trend in production is over.
I can’t say that this is bearish for the oil market since U.S. has materially cut its oil production since the beginning of the crisis, but oil traders should expect that U.S. domestic oil production will start to increase if prices get above $40 per barrel.
Virus Worries May Be The Main Reason Why Oil Fails To Settle Above $40
The U.S. has just set a new virus record, reporting more than 47,000 new coronavirus cases in one day. Some other countries also deal with spikes in the number of new cases.
Britain has recently been forced to impose a lockdown on the city of Leicester as the number of coronavirus cases surged. Kazakhstan is planning a two-week lockdown starting from July 5 as it is hit by the second wave of the virus. Some U.S. states have already been forced to close bars and delay reopening of indoor dining.
While the stock market is able to ignore such news since stock traders count on the support provided by the never-ending stimulus from the world central banks, oil traders cannot ignore the risks of new lockdowns since oil is a physical product.
New lockdowns will immediately lead to a decrease in demand for oil and also postpone the full reopening of aviation and other travel. At this point, it looks like oil will need some stabilization on the virus front to settle above the $40 level.
For a look at all of today’s economic events, check out our economic calendar.