U.S. West Texas Intermediate crude oil futures are trading lower on Friday but in a position to close out the week with a small gain after hitting a multi-month high on Wednesday on the back of a much bigger than expected drop in U.S. crude stockpiles.
As we near the end of the week, oil prices are struggling to hold on to their five-month highs as fuel demand worries caused by a second wave of coronavirus infections outweighed declines in the U.S. Dollar.
US Energy Information Administration Weekly Inventories Report
The EIA reported on Wednesday that U.S. crude oil inventories fell 7.4 million barrels during the week-ending July 31. Analysts had expected an inventory decline of 3.267 million barrels for the week.
On Tuesday, the American Petroleum Institute reported an inventory draw of 8.587 million barrels for the last week of July.
The EIA also reported an increase in gasoline inventories of 419,000 barrels, after a 700,000-barrel build estimated the previous week. Distillate fuels inventory increased 1.6 million barrels for the week to July 31. That compared with a build of half a million barrels a week earlier.
Gasoline production last week averaged 9.3 million bpd, compared with 9.2 million bpd a week earlier. Production of distillates last week averaged 4.9 million bpd, compared with 4.8 million bpd a week earlier.
Key Takeaways from the EIA Report
U.S. crude oil refinery inputs averaged 14.6 million barrels per day during…
U.S. West Texas Intermediate crude oil futures are trading lower on Friday but in a position to close out the week with a small gain after hitting a multi-month high on Wednesday on the back of a much bigger than expected drop in U.S. crude stockpiles.
As we near the end of the week, oil prices are struggling to hold on to their five-month highs as fuel demand worries caused by a second wave of coronavirus infections outweighed declines in the U.S. Dollar.
US Energy Information Administration Weekly Inventories Report
The EIA reported on Wednesday that U.S. crude oil inventories fell 7.4 million barrels during the week-ending July 31. Analysts had expected an inventory decline of 3.267 million barrels for the week.
On Tuesday, the American Petroleum Institute reported an inventory draw of 8.587 million barrels for the last week of July.
The EIA also reported an increase in gasoline inventories of 419,000 barrels, after a 700,000-barrel build estimated the previous week. Distillate fuels inventory increased 1.6 million barrels for the week to July 31. That compared with a build of half a million barrels a week earlier.
Gasoline production last week averaged 9.3 million bpd, compared with 9.2 million bpd a week earlier. Production of distillates last week averaged 4.9 million bpd, compared with 4.8 million bpd a week earlier.
Key Takeaways from the EIA Report
U.S. crude oil refinery inputs averaged 14.6 million barrels per day during the week-ending July 31, which was 42,000 barrels per day more than the previous week's average.
U.S. crude oil imports averaged 6.0 million barrels per day last week, increased by 0.9 million barrels per day from the previous week.
Total products supplied over the last four-week period averaged 18.3 million barrels a day, down by 13.5% from the same period last year.
Over the past four weeks, gasoline product supplied averaged 8.7 million barrels a day, down by 9.1% from the same period last year.
Demand Outlook Bleak
The International Energy Agency (IEA) updated its oil demand forecast and now expects demand to suffer a 7.9-million-bpd decline this year. This compares with expectations of an 8.9-million-bpd demand contraction by OPEC.
Earlier in the week, the International Monetary Fund (IMF) said it expected crude oil demand to record an 8-percent decline this year. As a result, prices will be 41 percent lower than they were last year on average, the IMF said in a report titled 'Global Imbalances and the COVID-19 Crisis'.
Weekly Technical Analysis
Weekly September WTI Crude Oil
Trend Indicator Analysis
The main trend is up according to the weekly swing chart. The trade through $42.51 signaled a resumption of the uptrend. A move through $35.01 will change the main trend to down.
The main range is $61.44 to $21.99. Its 50% to 61.80% retracement zone at $41.72 to $46.37 is the major resistance.
The minor range is $35.01 to $43.52. Its 50% level at $39.27 is support. It is controlling the near-term direction of the market.
The short-term range is $21.99 to $43.52. If the main trend changes to down then its retracement zone at $32.76 to $30.21 will become the primary downside target. This should be considered a value zone so look for buyers to return on a test of this area.
Weekly Technical Forecast
Based on this week's price action, the direction of the September WTI crude oil market is likely to be determined by trader reaction to the 50% level at $41.72.
Bullish Scenario
A sustained move over $41.72 will indicate the presence of buyers. This could lead to a quick test of the minor high at $43.52. Taking out this level could trigger an acceleration to the upside since the weekly chart indicates there is no resistance until $46.37.
Bearish Scenario
A sustained move under $41.72 will signal the presence of sellers. The first downside targets are a minor 50% level at $39.27 and a minor bottom at $38.72. Taking out this level could trigger a further decline into $35.01 over the near-term.
Short-Term Outlook
This week's price action clearly indicates traders are worried about gasoline and distillate demand at a time when U.S. central bankers said the resurgence in cases was slowing the economic recovery in the world's biggest oil consumer.
Although it is easy for momentum-driven hedge funds to react to large drawdowns in crude oil inventories, it is also difficult to hold on to those gains with demand for products having stalled.
Furthermore, bullish traders aren't showing much of a reaction to the plunge in the U.S. Dollar, which should be driving up dollar-denominated crude oil and gasoline. Additionally, gasoline demand is weak as the U.S. driving season winds down, which doesn't bode well for prices in September.
The weekly chart continues to show the possibility of an elongated sideways trade although the range did expand a little to the upside this week.
Look for an upside bias to develop on a sustained move over $41.72, while sellers could gain the upper hand on a sustained move under $39.27.