Oil prices surged higher yesterday in response to the latest report reflecting a further drawdown in US crude stores.
Oil prices initially began to move higher on Tuesday in response to the weekly report from the API. The API report showed a large 8.1 million barrel crude inventories drawdown. On Wednesday, prices then shot up higher as the weekly report from the EIA confirmed the data.
Crude Inventories Fall Again
The report from the Energy Information Administration, covering the week ending July 5th, showed that US crude stores had fallen by 9.5 million barrels.
This decrease was well above the 3.1 million barrel decrease the market was looking for. It also marks the fourth consecutive week of drawdown in US crude stores.
Gasoline & Distillates Down
Elsewhere, the report showed that US gasoline stocks had also fallen by 1.5 million barrels. This was, again, more than the 1.3 million barrel drop forecast.
Refinery crude runs jumped by 148k barrels per day. They hit 17.4 million barrels per day, marking their highest levels since January. Distillate inventories, which include diesel and heating oil, jumped by 3.7 million barrels, far outstripping expectations for a 739k barrel increase.
Refinery Utilization Rates Increase
Refinery utilization rates rose by 0.5% to hit 94.7%, their highest level since January. This increase came despite a reduction in refinery operation capacity on the East Coast in the wake of the Philadelphia Energy Solutions Complex shutdown.
Oil prices have also been boosted by an incoming cyclone in the Gulf of Mexico. The cyclone has caused major oil producers in the area to close drilling facilities and evacuate staff.
Net us crude imports were down over the week, falling 341k barrels. Meanwhile, US crude production was actually seen ticking up by 100k barrels per day, to 12.3 million barrels per day. This is just off the all-time highs of 12.4 million.
OPEC Production Cut Extension Feeding Through
The uptick in oil this week might also be attributed to the market having digested OPEC’s announcement last week that it is extending the current production cuts by a further nine months.
Oil prices fell initially, likely in response to concerns over the demand outlook. However, in the wake of continued declines in US crude inventories, reflecting solid demand, the extended cuts now seem to be helping keep the market supported.
Middle East Tensions Supporting Oil
Tensions in the Middle East have also played a role in driving higher prices.
Last week, the UK seized an Iranian oil tanker. Iran responded by warning the UK. Consequently, a British oil tanker in the region has been sheltering off the coast of Saudi Arabia for fear of being seized by Iran.
This morning, the market was rocked by the news that Iranian military ships attempted to take over a UK oil tanker in the strait of Hormuz, forcing a UK navy warship which was accompanying the naker to train its guns on the Iranian ships and warn them off. With over a third of oil seaborne oil moving through the channel, the situation is causing concerns over supply disruptions.
The rally in crude has seen prices breaking back above the recent 60.07 resistance level which capped the last advance. This rally has also seen price breaking back above the bearish trend line running from year-to-date highs. Focus is now firmly fixed on a further push higher for oil, with the 64.02 level the next key target for bulls. Above this, the 2019 highs of 66.56 will be the main test. To the downside, any retest of the broken trend line should provide support, with the 57.98 level coming in just below.