Oil Tries To Settle Above $39 As Crude Inventories Decline By 8 Million Barrels

Oil Video 04.11.20.

Crude Inventories Unexpectedly Decline

Yesterday, API Crude Oil Stock Change report indicated that crude inventories decreased by 8 million barrels. Today, EIA Weekly Petroleum Status Report also showed that inventories declined by 8 million barrels. Meanwhile, gasoline inventories increased by 1.5 million barrels and distillate fuel inventories decreased by 1.6 million barrels.

There were two major catalysts for the unexpected decline in inventory levels. First, the U.S. domestic oil production decreased from 11.1 million barrels per day (bpd) to 10.5 million bpd as production was hurt by the most recent hurricane.

Second, imports decreased by 0.6 million bpd and averaged 5 million bpd compared to the four-week average of 5.3 million bpd.

The major decrease in inventory levels will provide a welcome support to the oil market at a time when traders are worried about the negative impact of lockdowns in Europe.

However, it should be noted that U.S. domestic oil production will likely recover soon as the number of U.S. oil rigs continues to grow. Thus, an additional increase of oil demand is required for a sustainable decline in crude inventory levels.

Oil Shows Strength Amid U.S. Election Uncertainty

At this point, it is still not clear who will be the U.S. President for the next four years. However, stocks are rallying despite this uncertainty, and oil is also gaining ground, helped by the bullish inventory report.

In my opinion, oil traders will mostly ignore the outcome of the U.S. presidential election regardless of who wins and focus on the latest developments on the coronavirus front which may lead to new lockdowns and hurt the demand for oil.

In addition, there is a risk that current lockdowns in Europe will have to be extended to include Christmas in order to put the virus under control. This scenario is bad for the world economy and demand for oil.

A the same time, it should be noted that oil managed to quickly rebound from the recent lows below the $34 level which indicated that it had strong support on any major pullback. Nevertheless, oil will clearly need additional positive catalysts to continue the current upside move as demand remains under pressure due to lockdowns and the latest data on the spread of the virus does not look good.

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