Oil Slumps Despite Big Stock Draw, Fuel Supplies To Blame

The U.S. Energy Department's inventory release showed that crude stockpiles recorded a large weekly draw on healthy refinery utilization. The 4.3 million barrels dip pushed storage levels to their lowest since February 2015.

But the positive effect from the hefty crude supply draw was more than offset by surprise build in fuel (gasoline and distillate) inventories. On a further bearish note, domestic oil production continued to be at record levels. Growing concerns about demand growth amid escalating trade conflict between the world's biggest oil consumers, the United States and China, also pressured the commodity futures.

As a result, the front month West Texas Intermediate crude futures moved down 1.4 percent to end at $67.77 per barrel on Thursday — the lowest settlement since August 21.

What The EIA Data Shows

Crude Oil: The federal government's EIA report revealed that crude inventories fell by 4.3 million barrels for the week ending August 31, following a decrease of 2.6 million barrels in the previous week. The analysts surveyed by S&P Global Platts, an independent commodities and energy data provider, had expected crude stocks to go down some 2.5 million barrels.

Oil inventories have generally trended lower in a year-and-a-half. In fact, stockpiles have shrunk in 50 of the last 74 weeks and are down more than 130 million barrels since April 2017. The gradual fall has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 401.5 million barrels, current crude supplies are 13 percent below the year-ago figure though stocks are at the five-year average.

Strong refiner demand led to the larger-than-expected stockpile draw with the world's biggest oil consumer even as domestic production stayed strong at 11 million barrels per day — the most since the EIA started maintaining weekly data in 1983.

In particular, output in the United States have climbed sharply on increased production from shale formations to remain over the 10 million barrels a day threshold since early February.

However, on a slightly bearish note, stocks at the Cushing terminal in Oklahoma — the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange — edged up 549,000 barrels to 24.8 million barrels.

The crude supply cover was down from 22.9 days in the previous week to 22.6 days. In the year-ago period, the supply cover was 27.5 days.

Gasoline: Gasoline supplies were up for the second time in three weeks on weaker demand. The 1.8 million barrels gain – defying the polled number of 1.5 million barrels fall in supply level – took gasoline stockpiles up to 234.6 million barrels. Following last week's addition, the current stock of the most widely used petroleum product is now 3.5 percent above the year-earlier level and is 7 percent over the five-year range.

Distillate: Distillate fuel supplies (including diesel and heating oil) were up 3.1 million barrels last week. Meanwhile, analysts expected the supply level to be unchanged. The fifth weekly rise in six weeks could be attributed to lower demand and higher production. Despite the string of increases, at 133.1 million barrels, current supplies are 10% below the year-ago level and 6 percent lower than the 5-year average.

Refinery Rates: Refinery utilization was up by 0.3 percent from the prior week to 96.6 percent.

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