WTI Oil Remains Under Pressure Despite Falling Inventories

Key Insights

• Crude inventories declined by 7.1 million barrels, providing temporary support to the oil market. 
• However, WTI oil quickly returned to multi-month lows as traders remained focused on various bearish catalysts. 
• WTI oil will need significant upside catalysts to break the current downside trend. 

Domestic Oil Production Declines To 12.1 Million Bpd

WTI oil continues to trade near multi-month lows after the release of the EIA Weekly Petroleum Status Report.

The report indicated that crude inventories declined by 7.1 million barrels from the previous week. Analysts expected that crude inventories would decline by just 0.3 million barrels. Gasoline inventories decreased by 4.6 million barrels, while distillate fuel inventories increased by 0.8 million barrels.

Interestingly, domestic oil production declined from 12.2 million bpd to 12.1 million bpd, and it looks that production of 12.2 million bpd may not be sustainable at current oil price levels.

Traders ignored rising inventories and falling domestic production, focusing on recession risks. In addition, there was an increase in exports, which contributed to falling inventories.

OPEC Believes That The Market Could Absorb Extra Oil From Iran

OPEC Secretary-General Haitham Al-Ghais has recently stated that fears over the slowing consumption in China were exaggerated. He added that spare capacity was scarce, and that a squeeze in the oil market was likely due to chronic underinvestment.

Haitham Al-Ghais also added that the market could absorb extra oil from Iran if it is released in a responsible fashion.

However, the oil market remains focused on risk factors, which include a potential recession in the EU, weak growth in China, rising interest rates, and extra oil from Iran. There are no news about the Iran nuclear deal, and traders are waiting for additional information.

The general trend in the oil market remains bearish, and WTI oil is trying to get to the test of the $85 level. A move below this level will signal that the market is moving towards the $75 – $80 range.

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