Hello there. Welcome to another episode of the Crude Chronicles series.

It’s been another volatile week for crude oil prices which have seen a sharp drop despite the latest inventories data showing a drawdown. The latest report from the Energy Information Administration for the week ending Sept 6th showed that US crude stores declined by a large 6.9 million barrels. This decline far exceeded analyst expectations of a 2.7-million-barrel drop and comes just a day after the American Petroleum Institute reported a 7.23-million-barrel decline.

Gasoline Inventories Down

The EIA report also showed that gasoline inventories were down by 700k barrels over the week, following a 2.4-million-barrel decline over the previous week. However, Distillate fuel inventories, which include diesel and heating oil, were up by 2.7 million barrels over the week, on the back of a 2.5-million-barrel decline over the prior week.

EIA Downgrades Global Demand Forecasts

The release from the EIA comes on the back of its September Short-Term Energy Outlook which forecasts US crude production to continue to rise over the year. The group now sees US crude production rising from 1.25 million barrels per day over 2018 to hit 12.24 million barrels per day by the end of the year. The 2020 forecast also projects a rise of 990k barrels per day to 13.23 million barrels per day.

Surging US crude production has been a big obstacle to higher prices in crude this year. The increase is largely due to a steady growth in supply from the Permian basin, which runs across Texas and New Mexico and is the biggest in the US. Indeed, the surge in crude production means that the US is now the largest producer in the word, leading Saudi Arabia and Russia in oil production.

OPEC Meeting Underway

Indeed, the rise in US crude production has been particularly challenging for OPEC. The oil cartel led by Saudi Arabia has been slashing oil production since January in a bid to boost oil prices. While these cuts were initially successful in boosting oil prices, a fresh escalation of the trade war between the US and China, as well as rising US crude production, has weighed on oil prices recently. Consequently, the group announced that the cuts (which were originally due to end in June) would be extended until the end of Q1 2020 in a bid to counter soft global demand and rising US production.

Iraq Calling For Deeper Cuts

OPEC is currently taking part in the latest of its scheduled meetings and there is growing speculation that the group could announce further measures to counter still subdued oil prices. Iraqi Oil Minister Thamer Ghadhban told reporters that the group would be discussing whether to slash oil production further in light of worsening global conditions and said that the group had previously discussed cuts of as much as 1.6 to 1.8 million barrels per day when first talking about production cuts last year. In its latest global forecasts update delivered this week, OPEC projects world oil demand to fall by 60k barrels per day to 1.08 million barrels per day by 2020 as a result of the growing economic downturn fuelled by the rising trade war.

Technical Perspective

The rally in crude over the first part of the week saw prices breaking out above the bearish trend line from year to date highs. However, price was capped by the 58.81 level which has since turned price lower to trade back beneath the bearish trend line. Should downside momentum deepen, focus will be on a further test of the 51.27 base which, if broken, should pave the way for a much deeper move in oil. For now, however, price remains range bound between this lower level and initial resistance at 58.81, ahead of the 60.91 level next.

Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.