2019 has been good for oil bulls. Hedge funds largely poured into the long side of the market this year as OPEC+ showed strong discipline in removing barrels from the supply chain and geopolitical disruption festered in Venezuela, Libya and Nigeria. The Trump administration’s surprise decision to end their waiver program for buyers of Iranian oil to drive the country’s exports to zero was supposed to be the bullish nail in the coffin permitting a run to $80 or higher.
Except one pesky data point seems to be preventing that for now- ballooning US crude oil inventories. Last week’s DOE report showed a surprise 9.5m bbl w/w increase in US crude stocks driven by elevated imports, surging US crude production and extremely weak refiner run levels. We were admittedly on the bullish train last week following the Iran waiver news from the White House, but it seems the longs will have to wait for some fundamental confirmation before the market can extend its winning streak.
The market is correct to pause at current levels before another surge higher because the fundamental situation in the US isn’t pretty. US crude oil stocks are higher y/y/ by more than 7% while refiner demand is lower by about 500k bpd. The high supply / low demand regime has Days of Cover for US crude stocks at 28.9 versus 26.0 in early May of 2018.
The situation is further complicated by the continued presence of Iranian tankers across the Middle East and in East Asia. Bloomberg’s…