Crude Oil Inventories Down Significantly

Alan Penny

23 October 2019

3 min read

  • Anticipated build of 2.5 million barrels
  • Actual release of -1.7 million barrels
  • Potential supply cuts

The Crude Oil Inventories figure came out of the United States during the trading session on Wednesday, showing a drawdown of -1.7 million barrels, as opposed to the anticipated build of 2.5 million barrels. While this is a very bullish sign, the reality is that this announcement tends to be very volatile week after week. Only so much can be read into the announcement for a longer-term trade.

Short-term traders are jumping in hand over fist just after the release, but ultimately the best way to look at this announcement is more or less to see whether or not there is a trend.

The longer-term trend

The longer-term trend for the inventory figure has been very bearish, as it has missed the previous five weeks in a row. Although this announcement was very bullish for oil, the reality is that it could be a bit of an anomaly, something that we see quite often in this announcement. However, it’s the best one we have to measure the demand for crude oil, as it shows how much crude oil has been either built up or burned through in the United States.

The longer-term trend for the underlying WTI Crude Oil market is more or less going to be consolidation from the price standpoint, so it remains to be seen whether or not this announcement will make a major difference.

The WTI market has been building up a bit of a base recently anyway, so the idea that the market would bounce from here was probably already built into the price. Currently, WTI is trading between $50 on the bottom and $60 on the top.

Global growth and OPEC

At this point, global growth continues to be a major issue as it can weigh upon the idea of demand for energy in general, and WTI won’t be any different.

The next thing to pay attention to is OPEC, as there are a lot of rumors around the markets that production cuts may be coming. This will be decided during the December meeting in Vienna, so the market could be trying to price in that cut ahead of time. It certainly showed quite a bit of bullish pressure during the trading session on Tuesday as those rumors hit the wires.

it is more than likely going to continue to be a market that chops back and forth

Going forward, it appears that the market is ready to try to reach towards the top of the overall consolidation, so it is more than likely going to continue to be a market that chops back and forth. All things being equal, the market is likely to find buyers underneath. That’s because the $50 level has historically been massive support for the marketplace in general. Additionally, although global growth is a concern, OPEC certainly will get aggressive if the oil price drops below that level.

All things being equal, it’s very possible that the crude oil market has a bit of a “floor” underneath it.

Written By
Alan Penny

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