EIA oil inventories preview: Crude struggles after mixed API data

Commodities

Crude oil and Brent oil are struggling below opening levels today after a bearish inventory report from the American Petroleum Institute.

Both benchmarks headed back towards the two-week lows hit yesterday before returning to trade just under opening levels.

Crude is on track to record its first monthly loss in five months, while Brent looks set to end lower for the first time in six months.

API: Oil draw falls short, surprise gasoline build

The API reported a smaller-than-expected draw in crude oil inventories and a surprise build in gasoline inventories.

Crude oil inventories fell by 831,000 barrels in the week ending September 25th, against analyst forecasts of a 2.256 million barrel drop.

Gasoline inventories also disappointed forecasts, rising by 1.623 million barrels during the same period, instead of falling by 1.3 million barrels as expected.

In more supportive news, US oil production fell to 10.7 million barrels per day.

Rising coronavirus cases raise questions over global recovery

The rising number of coronavirus cases as winter approaches in the Northern Hemisphere has heightened fears of new restrictions that could curb economic activity and therefore demand for oil.

While certain parts of the global economy are bouncing back, others continue to be hammered by the pandemic. Airlines are a key market for oil and various restrictions combined with a general fear of air travel given the current circumstances has seen a huge drop in bookings.

On Tuesday the global Covid-19 death toll passed the 1 million mark, up from 500,000 three months ago, with the number of infected exceeding 33 million.

Traders are also worried that the US Presidential Election may not produce a clear winner on November 3rd, leading to more disruption for the world’s largest economy as both Trump and Biden contest the results.

US EIA Crude Oil Inventories preview: Oil erases losses on broad inventory drawdown

Commodities

Crude oil has erased yesterday’s losses and Brent is close to doing so as well after private oil inventories data yesterday showed a large draw.

WTI (SEP) has gained $0.40 (1%), although remains near the middle of its recent trading range at $42.14. Brent is $0.33 (0.7%) higher to trend just above $45.00. Both benchmarks had spiked to their second-highest levels since March yesterday in the wake of the latest data from the American Petroleum Institute.

Private data shows larger-than-expected oil, gasoline draws

API data released yesterday showed a drop in crude inventories of 4.4 million barrels during the week ending August 7th. Analysts had expected a drop of 2.875 million barrels.

The figures continue to point to strong demand recovery in the US, helping to counterbalance some of the downside pressure on crude as OPEC members begin scaling up production after cutting by record levels between May and July.

Further improving sentiment was a larger-than-expected draw from gasoline inventories. Stocks fell by 1.748 million barrels against expectations of a 674,000 decline.

US EIA Crude Oil Inventories forecasts

Forecasts for the US EIA Crude Oil Inventories report suggest a drop, but as we’ve seen previously both the direction and magnitude of the change often takes analysts by surprise. Predictions for the past four weeks’ worth of US EIA data have been way off the mark in terms of the size of the change, and wrong about the direction twice.

After the API data many traders will be expecting to see a similar decline in inventories when the EIA publishes its official figures.

As well as the latest inventories data, traders can also expect fundamental updates from today’s Monthly Oil Market Report published by OPEC, and tomorrow’s Oil Market Report from the International Energy Agency.

Stocks firm, gold chased higher, Tesla earnings beat

Morning Note

European stocks were firmer after US stocks rallied yesterday to finish at the best level in months, whilst Asia was mixed. The S&P 500 closed at 3,276, its best finish since February as decent corporate earnings supported the bulls who continue to shrug off the rising Covid cases as well as mounting US-China tensions. The broad index also managed to close at the high of the previous session, having previously closed 20 pts short of this level. 

 

There are some concerns with US-China tensions after the closure of the consulate in Houston, with China retaliating by closing the US consulate in Chengdu. But this kind of tit-for-tat is nothing new – we have been dealing with a trade war for years and I think the market is fully expecting friction to increase, particularly as the US presidential election looms and domestic strife makes it all too convenient for the White House to bash China. UK-China tensions are something a little fresher and have led to Chinese authorities taking the English Premier League off air.  

 

Tesla posted its first full year of GAAP profitability, meaning it can now be considered for inclusion in the S&P 500. Excluding special items, EPS came in at $2.18 on revenues of $6bn. Whilst the beat on deliveries reported earlier by the company indicated a strong quarter, this was better than most had forecast. Whilst the stock is still exceedingly rich based on the fundamentals, it’s one with such a backing that it just doesn’t seem to matter. In some ways it’s a talisman for the whole stock market – old fashioned ideas like valuation and discounted free cash flow models simply don’t matter when you have such an incredible amount of liquidity. It’s also a bet on the future of the automotive industry – which carmaker is going to be around in 50 years? 

 

Microsoft shares fell after hours following its quarterly earnings revealed a slowing in cloud growth, with revenues from the Azure business down from 59% to 47%, although overall the company beat on both the top and bottom lines. XBox revenues soared as gamers found ways to pass the time in lockdown. Likewise Americans stocking up on ice cream and other goodies lifted Unilever sales but emerging markets -without the help of an Ocado to bring consumers lockdown treats – were tougher.

 

On the data front, Germany’s Gfk consumer confidence survey was better than expected, printing –0.3 vs the –4.6 expected. South Korea’s economy is in recession after the worst slump 57 years.  

 

Today the focus is on the US weekly unemployment numbers, with initial jobless claims forecast to hold steady at 1.3m. Initial jobless claims last week of 1.3m were almost unchanged from the prior week. As noted after the release of the numbers last Thursday, the improving trend in initial jobless claims has all but halted, which may reflect the spike in coronavirus cases that has coincided with renewed lockdown measures in a number of economically important states such as Texas and California. There are also big worries that temporary layoffs are turning into permanent firings. 

 

Continuing claims fell to 17.3m vs the 18m in the prior week, which was a tad better than the 17.6m expected. The total number of people claiming benefits in all programmes for the week ending June 27th fell to 32m a decrease of 430k from the previous week.  

On the Covid front, US deaths exceeded 1,000 for the second day, whilst California – the most populous and economically important state – saw more than 12k cases on Wednesday, its largest single-day rise. 

 

In FX, the dollar remains on the backfoot with major peers cementing gains. EURUSD has cleared the January 2019 peak at 1.1570 and looking for a further extension towards the next big Fibonacci level at 1.1760 and the September 2018 swing highs at 1.18. The outlook for the euro is more bullish – on a technical note the clearance of 1.15 is a big hurdle out of the way, whilst the agreement on the EU pandemic fund is fundamentally vital to pushing the euro higher. Longer term is could have very far-reaching repercussions for bond investors, too. GBPUSD was trading above 1.27 and the 200-day moving average and testing the descending trend line that forced the pullback on Tuesday – clearance of these two hurdles opens up a path to 1.30 albeit the fundamental bullish thesis on sterling is far cloudier. 

 

Oil nudged up despite the rise in US crude inventories. WTI (Aug) pressed up above $42 after the EIA reported a crude oil inventory build of 4.9m barrels in the week to July 17th, vs the 2m barrel draw expected, albeit the API print had already flagged a likely increase in stockpiles. Stocks at the Cushing, Oklahoma, hub rose 1.375m vs last week’s build of almost 1m. 

 

Gold continues to march higher as real rates hit all-time lows with 10yr TIPS finishing at –0.88%. Gold pressed up to $1,876 this morning to mark a new 9-year peak. The momentum that is chasing this trade should easily enable bulls to find the $1921 all-time high last achieved in 2011 – you get the feeling there is a lot of appetite to take out this level, but expect some considerable resistance and another pullback to $1800 may be required first. After clearing the all-time high there is a chance of a move to $2k, but we should question whether the support from declining real rates will continue to act as a driver of gold prices without a significant inflationary follow-through. Nevertheless, it’s clear that the combination of a very uncertain macro backdrop, fresh geopolitical risk, the threat of inflation stemming from the massive injection of both monetary and fiscal stimulus make gold a clear-cut Covid winner. 

EIA oil preview: API signals huge build

Oil broke out to finally close the gap to the March 6th level. WTI (Aug) rose above $42 but pared gains on an unexpectedly large build in US crude stockpiles. Crude inventories rose by 7.5m barrels last week, according to the American Petroleum Institute.

The Energy Information Administration is forecast to report a draw of 2.1m barrels when it releases its weekly report later today. If the EIA confirms the API numbers it would be the biggest build in inventories since late May. There is a risk that there is a greater and faster build-up in inventories as states have rolled back some lockdown restrictions and demand may not have picked up as quickly as anticipated. Jobless claims figures indicate far fewer trips made for work, whilst air passenger numbers continue to lag last year despite a pickup in the US. Rising coronavirus case numbers continue to weigh on trader sentiment, albeit OPEC+ production curbs continue to act as a rising balloon for prices.

Vaccine hopes have helped fuel oil prices to rally to their best level since March but at the same time traders as cautious about getting too optimistic when there is so much uncertainty not only over demand, but also supply given the propensity for US shale production to restart as prices move higher.

 

US oil inventories preview: Crude rebounds after hitting lowest levels since July 1st

Commodities

Crude oil touched the lowest levels since the start of the month on Tuesday as investors fretted over the pace of reopening in the world’s major economies. Better-than-expected US crude oil inventories data from the American Petroleum Institute helped push oil higher on Wednesday, with WTI briefly spiking above $41.00 before pulling back to trade below the long-term resistance level.

Crude oil remains rangebound ahead of this week’s main events, with $41.00 providing resistance and support at $39.00.

Oil unsteady as California orders bars to close

Risk sentiment has been knocked across the board after Californian governor Gavin Newsom ordered bars across the state to close and indoor operations to halt in restaurants, cinemas and museums.

The measures have raised questions over how quickly the world’s major economies can afford to reopen. California’s shutdown was prompted by an increase in the average number of new Covid-19 cases to over 8,000 per day during the past week.

OPEC committee to review production cuts

The timing of the shuttering in California is particularly troublesome for the oil markets, given that OPEC’s Joint Ministerial Committee meets this week to review the level of production cuts. The cartel is expected to taper the level of cuts by about 2 million barrels per day from August, down from the current record 9.7 million bpd.

OPEC Secretary General Mohammad Barkindo had said on Monday that the gradual easing of lockdown measures across the globe, in tandem with the supply cuts, was bringing the oil market closer to balance. An unwinding of the cuts just as some economies put the brakes on activity again threatens to send oil prices lower.

EIA data: Draw expected, but are the forecasts accurate?

Prices are also being kept contained ahead of the US Energy Information Administration’s weekly crude inventories report. The latest EIA data is expected to show a draw of 2.275 million barrels after last week’s surprise build of over 5.6 million barrels.

Oil rallied yesterday after the American Petroleum Institute predicted a weekly draw of 8.3 million barrels, smashing expectations for a 2.275 million barrel drop in storage volumes.

US oil inventories preview: EIA raises WTI price forecast

Commodities

US crude oil inventories are expected to see a draw of 3.2m barrels in the week to July 3rd, whilst gasoline stocks are expected to drop by 1.2m barrels.

Yesterday the American Petroleum Institute (API) reported a build in US crude stocks of 2m barrels, whilst gasoline stockpiles fell by 1.8m barrels. Crude at the Cushing, Oklahoma, hub rose 2.2m barrels.

Meanwhile the U.S. Energy Information Administration presented a more bullish fundamental case and raised its West Texas Intermediate (WTI) price forecast for 2020 to $37.55 a barrel, up almost 7% from the June forecast.  2021 prices are forecast to average $45.70 in 2021, a gain of 4% from before. The EIA said changes in supply and demand have shifted global oil markets from an estimated 21 million barrels per day of oversupply in April to inventory draws in June.

The EIA also said that it expects high inventory levels and surplus crude oil production capacity to cap the upside for oil prices in the coming months. However, as inventories decline into 2021, the upward pressure on prices should increase.

Other highlights from the EIA Short Term Energy Outlook:

  • Brent crude prices forecast at $40.50 in 2020 and $49.70 in 2021
  • Average US crude oil production to fall in 2020 and 2021 as forecast WTI spot prices remain less than $50/b through 2021. EIA forecasts that U.S. crude oil production will average 11.6 million b/d in 2020 and 11.0 million b/d in 2021.
  • US liquid fuels consumption will average 18.3 million b/d in 2020, down 2.1 million b/d from 2019. Declines in US liquid fuels consumption vary across products. From 2019 to 2020, EIA expects jet fuel consumption to fall by 31% and gasoline and distillate fuel consumption to both fall by 10%.

Crude oil has been stuck in a tight range around $40 in recent days but continues to exert an upwards bias despite the potential head and shoulders reversal pattern evident on the chart.

US oil inventories preview: EIA data to confirm the biggest draw this year?

Commodities

Crude oil has been able to power through the $40 handle today ahead of the US EIA crude oil inventories data, following a forecast-beating draw revealed by the American Petroleum Institute.

The latest API report estimated an 8.156 million barrel draw from US oil stocks last week, smashing forecasts for a draw of 710,000 barrels.

If accurate, it will be the largest draw of 2020 so far. Gasoline stocks also fell more than expected, with a draw of 2.459 million barrels last week, down from the previous week’s 3.856 million barrel drop, but still almost one million barrels higher than analysts had predicted.

US oil inventories report boosts oil after indecisive session

West Texas Intermediate crude oil had tumbled through the $40 handle to close at $38 per barrel on June 24th. Since then the benchmark has recovered, with yesterday’s API data helping oil gain around $0.60, or 1.6%. Yesterday’s indecisive trading saw prices briefly rise above $40 before retreating to close virtually flat at $39.60.

Brent oil has risen $0.60, or 1.5%, today to trade above $42 for the first time in five days.

The huge draw was some welcome news for oil bulls, after the commodity had been stuck trading sideways in line with other markets as investors struggled to weigh up improving economic data and rising numbers of coronavirus infections.

The API data has given crude oil fresh impetus on a day that could otherwise have seen more range bound trading.

On a positive note, the Chinese Caixin Manufacturing PMI beat expectations, rising from a revised 50.7 to hit 51.2 in June, against forecasts of 50.5.

But on the other hand, the US has recorded its biggest single day spike in cases since the pandemic started after reporting 47,000 new Covid-19 infections, raising fears that parts of the economy may have to be shuttered again to prevent further spread, which would hamper the recovery and dent the outlook for the oil demand.

Gold makes fresh highs, equities retreat to middle of ranges

Morning Note

Gold broke out to fresh multi-year highs above $1770 as real Treasury yields continued to plunge. US 10-year Treasury Inflation Protected Securities (TIPS) dipped to new 7-year lows at –0.66% and have declined by 14bps in the last 6 days. The front end of the curve has also declined more sharply in the last couple of sessions, with 2-year real rates at –0.81%. Indeed, all along the curve real rates have come down with the 30-year at –0.14%.

Gold has also found some bid on a softening dollar in recent days, with the dollar index down 1% in the last two sessions. Fears that global central banks are fuelling a latent inflation boom with aggressive increases in the money supply continue to act as the longer-term bull thesis for gold.

Gold climbs on falling bond yields, fears of long-term inflation bubble

As previously discussed, gold is a clear winner from the pandemic. Gold was initially sold off in February and the first half of March as a result of the scramble for cash and dollar funding squeeze. Since then gold has made substantial progress in tandem with risk assets since the March lows because of central bank action to keep a lid on bond yields. The combination of negative real yields and the prospect of an inflation surge due to massively increased money supply is sending prices higher.

Whilst the Covid-19 outbreak is at first a deflationary shock to the economy, the aftermath of this crisis could be profoundly inflationary. Gold remains the best hedge against inflation which may be about to return, even if deflationary pressures are more pronounced right now.

Covid-19 second wave fears keep stocks range bound

Stocks are a little shaky this morning after a strong bounce on Tuesday. European markets opened lower, with the FTSE 100 slotting back under 6,300 at the 61.8% retracement, which called for a further retreat to the 50% zone around 6220. The DAX is weaker this morning and broke down through support at 12,400, the 61.8% level.

The Dow is holding around 26,100 and the 50% level of the pullback in the second week of June, while the S&P 500 is finding support on the 61.8% level around 3,118. Equity markets continue to trade the ranges as investors search for direction on how quickly the economy will recover and whether second waves threats are real.

On the second wave, the US looks clearly to have suffered a new, and in the words of Dr Fauci, ‘disturbing surge’ in cases. Virus hotspots like Texas, Florida, California and Arizona are seeing cases soar. Such is the worry the EU may ban Americans from travelling to its member states. Tokyo has also reported a spike in cases, whilst Germany is locking down two districts in North Rhine-Westphalia and there has been an outbreak in Lower Saxony.

On stimulus, Treasury Sec Steve Mnuchin said the administration is looking at extending the tax deadline beyond July 15th and is seriously looking at additional fiscal support to build on the $2.2tn Cares Act.

Dollar retreats, RBNZ decision hits NZD

In FX, the dollar has been offered this week, allowing major peers to peel back off their lows. GBPUSD has regained 1.25, while EURUSD has recovered 1.13. The kiwi was offered today after the Reserve Bank of New Zealand left rates on hold but said monetary policy easing would need to continue. The RBNZ said it will continue with the Large Scale Asset Purchase programme of NZ$60b and keep rates at 0.25%. The central bank noted that the exchange rate ‘has placed further pressure on export earnings…[and] the balance of economic risks remains to the downside’.

Crude off multi-month highs, mixed on API data

WTI (Aug) pulled back having hit its best level since March, dropping beneath the $40.70 level that was the Jun 8th peak, but remained clinging to $40. Prices have slipped the near-term trend support. Again, I’m looking at a potential double top calling for a pull back to $35. However, the fundamentals are much more constructive, and indicate a stronger outlook for demand and supply than we had feared in May.

API data showed inventories rose 1.7m barrels last week, gasoline stocks declined by 3.9m barrels, while distillate inventories fell by 2.6m barrels. Crude stocks at the Cushing, Oklahoma, fell by 325,000 barrels for the week. EIA figures today are forecast to show a build of 1.2m barrels.

Chart: Gold up over 20% from its March low

A candlestick graph showing gold prices in 2020

EIA Crude Inventories Preview: Crude oil back below $41 after mixed API data

Commodities

Crude oil rose to test $41 yesterday as markets bet on a stronger-than-expected recovery in demand, with the actions of OPEC+ continuing to provide support. It was the highest since March 6th, although crude has today opened below $40.50 and briefly dipped below the $40 handle. Will today’s EIA crude oil inventories data given WTI some direction?

Data yesterday from the American Petroleum Institute indicated a 1.7 million barrel increase in US oil stocks. Analysts had forecast a rise of 300,000 barrels. Even though the data showed a higher-than-expected build, the injection was still the lowest for three weeks. The report also showed gasoline inventories fell, pointing to increased demand for fuel.

Yesterday’s run of PMIs from across the globe has helped reignite hopes of a quick economic rebound:

  • Australia’s services and composite indices unexpectedly leapt back into growth territory with readings above 50, while the manufacturing index printed just 0.2 points shy of the neutral level.
  • The French manufacturing, services, and composite indexes all blew past forecasts to return to growth.
  • PMIs for Germany and the Eurozone, while continuing to indicate a decline in output, rose further-than-expected to signal a slower pace of contraction than forecast.
  • The UK manufacturing sector grew fractionally in June, after the index recovered much further than analysts had predicted. Services and the composite index also bettered forecasts, although they still pointed to a decline.
  • US manufacturing shrank marginally in June, although the reading still beat expectations.

The readings helped improve the demand outlook. This, combined with support from a move towards greater compliance with production cuts from OPEC and its allies, helped crude oil hit three month highs yesterday, before profit-taking forced a retreat back towards $40.

Also supporting oil this week are revised average price forecasts for 2020 from Bank of America Global Research. Its average price forecast for WTI crude oil is now $39.70, an increase of nearly $8 per barrel.

EIA crude oil inventories preview: Can we trust the forecasts?

Commodities

Yesterday’s API oil inventories report showed a massive build, even though a draw had been expected. Forecasts for today’s US EIA crude oil inventories also predict a drop – how accurate are these predictions?

Crude oil, Brent oil drop after API data shows huge build

Yesterday’s crude oil stock change report from the American Petroleum Institute was expected to show that inventories fell by 1.7 million barrels in the week ending June 5th. Instead, stocks rose nearly 8.5 million barrels.

Oil fell further from the three-month highs hit on Monday on the back of the data. Today crude oil is currently down -$0.38 to trade around $38.12, while Brent oil is trending at $40.46 after falling -$0.29. This is partly due to the API data, but also because of expectations OPEC will not extend the record level of production cuts beyond July.

Candlestick price charts of spot crude oil and spot Brent oil

Will EIA data confirm huge stockpile build?

The Energy Information Administration releases its official crude oil inventories report later today. Forecasts were for a draw of over two million barrels, although in light of the API data this seems unlikely.

In fact, over the past five weeks forecasts for EIA data have been significantly wrong. On average, the forecast has been out by around 5 million barrels. In the past four weeks, forecasters have got the direction of inventory stocks wrong, predicting a build when in fact stocks fell, or vice versa.

Table: EIA crude oil inventories forecasts vs actual

Release Date

Actual

Forecast

Difference

Jun 03, 2020

-2.077M 3.038M

5.115M

May 28, 2020

7.928M -1.944M

9.872M

May 20, 2020

-4.983M 1.151M

6.134M

May 13, 2020

-0.745M 4.147M

4.892M

May 06, 2020

4.590M

7.759M

3.169M

 

Meanwhile, for the past three weeks, the API data and the EIA crude oil inventories report have both shown stockpiles moving in the same direction.

For the week commencing May 25th, the API data showed a build of 8.7 million barrels – under a million barrels above the EIA print.

For the week beginning May 18th, the API numbers were just 183,000 barrels below the EIA’s reported draw of -4.983 million.

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