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.

OPEC meeting weighs on crude oil ahead of US EIA inventories data

Commodities

Crude oil is on soft form today as markets await news on the next OPEC meeting and today’s US crude oil storage data.

WTI and Brent futures contracts for August have crept below opening levels ahead of the EIA data. Earlier in the session, crude oil had spiked above $38, while Brent had broken above $40 per barrel – both of which were the highest levels since early March.

Oil weak as news of OPEC meeting disappoints

Both crude oil and Brent oil have been on volatile form today as markets struggle to decide what seems to be the most likely outcome of the upcoming OPEC meeting.

Markets had been encouraged earlier in the week by indications that the meeting would be moved forwards to tomorrow (Thursday, June 4th), suggesting that members were keen to agree a deal to keep supporting prices.

There had been rumours that the current record level of production cuts, which at 9.7 million barrels per day equates to nearly 10% of global demand, would be extended all the way to the end of the year.

Compliance with the cuts has been running at around 75%, and the latest reports indicate that this is causing tensions amongst members of the cartel. Reuters has reported today that the OPEC+ group, which comprises the cartel and its allies, is likely to extend the cuts by one month.

This has not impressed markets, with traders having hoped for several more months of the higher production curbs.

Can EIA crude oil inventories data support prices ahead of OPEC meeting?

Data from the American Petroleum Institute released yesterday showed a surprise drawdown of half a million barrels. This was against market expectations of a 3 million barrel build.

Today’s official EIA data is also expected to show a build of 3 million barrels, after stocks rose by nearly 8 million barrels the previous week. A surprise draw in line with the API figures could lend some support to crude oil prices, although the issue of OPEC will remain the key driver of price action.

EIA Crude Oil Preview, May 28th: Data to confirm a huge build?

Commodities

WTI crude oil and Brent oil are cautiously higher ahead of today’s US oil inventories report.

The official weekly report from the Energy Information Administration is expected to show a drop of nearly 2 million barrels.

Crude oil dives as API data shows surprise build

But data yesterday from the American Petroleum Institute stunned markets with a surprise 8.1 million barrel build. Like the upcoming EIA data, forecasts had been for a draw of 2 million barrels.

WTI crude oil futures contracts for delivery in August have been range bound since the middle of May, with $32 providing support and resistance at $35 keeping a ceiling on rallies.

Chart: WTI crude oil futures contracts, August delivery

Candlestick graph for WTI crude oil August futures contracts, May 28th 2020

Traders have struggled to find direction: on the one hand, the reopening of global economies will help stimulate demand, but on the other, the world remains awash with excess supply.

Sentiment had already taken a hit yesterday even before the API data, as reports cast doubt over Russia’s commitment to OPEC+ production cuts.

Tensions between the US and China over a new security law for Hong Kong is also weighing on risk-appetite, although so far today oil has continued to find bid.

The API data saw crude oil prices fall over $2 per barrel, while Brent was off over $1.50. If the EIA data confirms that inventories rose again last week, today’s gains could quickly turn to losses.

Chart: Brent oil futures contracts, August delivery

Candlestick price chart for Brent oil August futures contracts

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