By Orbex

Crude Inventories Rise

The latest data from the Energy Information Administration showed that in the week ending Friday 31^st January, US crude stores were higher by 3.4 million barrels. This was far higher than the 3 million barrel increase the market was looking for. This also continues the recent run of inventory surpluses following last week’s 3.5 million barrel increase.

Gasoline & Distillate Inventories Decline

Despite the increase in crude stores, the data showed that US gasoline inventories were down by 100k barrels. This was on the back of a 1.2 million barrel increase over the prior week. Gasoline production has been higher over the last week, averaging 9.9 million barrels per day. This is up from 9.2 million barrels per day on the prior week.

The data showed that distillate inventories, which include diesel and heating fuel, were also lower last week. Distillate inventories fell by 1.5 million barrels over the week. This was versus a 1.3 million barrel decline over the prior week. In terms of output, distillate production averaged 5 million barrels per day last week. This was down from the prior week’s levels.

Elsewhere, the report showed that net US crude imports were higher by 51k barrels per day. On the other hand, refinery utilization rates rose by 0.2% as refiner crude runs jumped by 48k barrels per day.

Crude Booted By Virus Cure Hopes

Despite the mostly bearish report from the EIA, crude prices have posted a strong recovery into the second half of the week. Sky News reported that a Chinese research team were very close to finding a vaccine for the coronavirus outbreak. The virus has weighed on crude prices over recent weeks. The reports fuelled a strong recovery in equities prices dragging oil higher. However, the WHO was quick to dismiss the claims, stating:

“There are no known effective therapeutics against this 2019-nCoV and WHO recommends enrollment into a randomized controlled trial to test efficacy and safety. A master global clinical trial protocol for research and prioritization of therapeutics is ongoing at the WHO.”

With the virus having caused such severe disruption to crude demand, an eventual cure for the virus will likely be met with a much stronger rally giving the initial price action we have seen so far. When such a cure will materialize though, is still uncertain. However, with equities prices remaining supported into the back end of the week, a further rally in crude looks likely.

Technical Perspective

The recovery in crude prices on Wednesday saw price rallying back above the 50.65 support level which is a major long-term pivot for crude. While above here, a further push higher back towards the 54.97 level (structural resistance, broken bullish trend line) is on watch. However, such a move would likely require something more concrete regarding a coronavirus cure and for now, the 52.17 level is capping the correction. To the downside, any further move lower will put the focus back on the 46.98 level next.

By Orbex