By Orbex

US Oil Inventories Continue Rising

Crude oil prices fell again on Wednesday on weak demand and lingering fears of an economic slowdown, the Energy Information Administration reported for the week ending June 7.

US inventories continued showing a build for the sixth consecutive week now. This pointed to decelerating demand from China and a sharp slowdown in international trade. The weekly report could lead oil to fresh multi-month lows.

The level of inventories rose more than was expected on Wednesday. This marked a 2.2 million barrel build versus a forecast of a nearly half a million stock drawdown. API reported a surprise 4.85 million barrels build as well on Tuesday, as opposed to an estimate of 0.48 decline.

Gasoline Production & Refinery Inputs Up

According to the EIA, gasoline production rose. Production averaged around 10.3 million b/d, which is a rise of 800,000 barrels and 2% above the 5-year range.

The EIA said US refinery input averaged 17.1 million b/d. This is 126,000 b/d more compared to the June 1 report. During the week ending June 7 refineries operated at a 93.2% capacity rate.

Production Decreased After 3 Consecutive Weeks

The report also showed that US crude oil production fell by 100,000 barrels per day (b/d) compared to the week ending June 1st. Production saw a slight decrease during the week ending June 7, averaging 12.3 million b/d year on year (YoY) versus last week’s 1.4.

On Tuesday’s Short-Term Energy Outlook (STEO) report, the EIA reported that US oil production will increase by 1.4 million b/d in 2019 and by 0.9 in 2020. 2020’s yearly production is estimated to reach an average of 13.3 million b/d.

EIA Forecasts Lower Prices Than May’s STEO

In May’s STEO, the EIA had forecasted that WTI prices will average $59 in 2019 and $63 in 2020. Following the recent price declines and weakening demand, the EIA now expects the 2019 and 2020 prices to average near $56 and $60, respectively.

However, and despite the forecasts reflecting a variety of oil market indicators, market-derived confidence of the estimated price range remains highly uncertain.

The EIA stated that macroeconomic indicators pointing to high implied volatility in crude prices. These indicators include GDP, PMI, and other trade effects, along with the effect of OPEC+ production decisions.

Oil Sanctions Back on Table

Japan’s Prime Minister Shinzo Abe arrived in Iran on Wednesday. The purpose of the trip was to leverage the 90-year relationship with the Middle Eastern country in an attempt to de-escalate tensions.

The Japanese PM decided to visit Iran despite the US putting an end to sanction waivers. And Japan used to import nearly 5% of precious energy resources from Iran.

Nearly 40% of Japanese firms now hope to shift back to working with Iran as they see imports plunging for more than 40%. Some businesses, and particularly oil exploration companies, have been massively affected by Trump’s decision to withdraw from the international accord in 2018.

While Japan and Iran agreed to offer protection of investments in a 2016 investment agreement, Iran is now looking at Japan as a mediator between them and the US. They hope the Japanese will be able to alleviate tensions and finally ease sanctions.

WTI Looks Bearish Below $54.60

Crude bulls seem to have given up. With prices ranging between $54.61 and $50.59, the chance of a further downside increases as the current structure suggest we could expect another bearish wave 5.

With a correction (c) ending anywhere below $54.61 prices could promptly shift towards the $50 level. Although the correction could turn out to be a little deeper (up to $56.86), bears are likely to maintain control.

By Orbex