U.S. Crude Drawdown Streak Brings Oil Higher
On Wednesday, U.S. crude oil closed higher after the U.S. government reported a drawdown of stockpiles. Even better, this was the ninth week in a row where stockpiles had dropped. The better than expected draw of stockpiles drove the price of oil away from its two-month low that it recently hit. The amount of stockpiles announced dictates how the price of oil trades. This is where traders can keep an eye on when the U.S. government releases oil data, this way it is easier to predict which way oil will trade. If stockpiles increase, then the price of oil trades down. On the flip side, if the amount of stockpiles decrease, that allows the price to trade higher.
U.S. Stockpile Drawdown
The Energy Information Administration — EIA — announced that crude inventories fell by 2.3 million barrels. This data was for the week ending July 15. Analysts’ were only expecting a drawdown of 2.1 million barrels. With the amount of barrels dropping more than what was forecasted, it gave a bullish tone for the market. On top of creating a bullish atmosphere, it withdrew concerns that a global oil glut concern would bring markets lower. U.S. crude oil was higher by 0.7% to settle at $44.94 a barrel. Oil has been trading in a range for the past year, and the technicals are looking a bit mixed. Depending upon any current events for Thursday’s trading, any break above the $47 level could see a test of $48.43. If things don’t add up properly the price of oil could shift lower and possibly trade down to the 100-day moving average of $44.16.
Gasoline Shock
Gasoline stockpiles were on the opposite end of the supply spectrum. The EIA reported that supplies rose by 900,000 barrels to approximately 241 million. This is the highest level of barrels since April, which brings back a supply issue that must be resolved. The build up of 900,000 barrels came as a huge shock, because many analysts predicted that gasoline stocks would remain unchanged. There was hope that summer driving season would bring more traffic, and supposedly remove a huge chunk of supply. That was not the case, and an increase in gasoline supply can be seen as being very bearish. The drop in gasoline prices is most definitely a big negative for producers, who rely on higher prices for better profits. The good news is that consumers benefit from lower gas prices, and this in turn does help the economy. The average price of gasoline nationwide fell by 0.7 cent to $2.194 a gallon. Gasoline stockpiles rising indicates a reduction in demand for gas at the pump. Refineries produce barrels of oil into gasoline. This means that an increase in gasoline stockpiles, indicates big stockpiles of oil as well.
U.S. Oil Rig Counts On The Rise
One the main setbacks with U.S. oil rig counts is that oil had been on a decline for a long time. Oil had hit a low at around $26 a barrel back in February, but oil has bounced back since then. Oil has tanked by 75%, since hitting its peak of $108 a barrel in 2014. Baker Hughes has noted that oil rig count is in a turnaround mode. Beforehand, it had been collapsing week after week. Not this time, because total rig count rose for the third straight week. This had been the longest streak for the oil rig count since August of 2015. While these new rigs may bring about additional supply, it is still bullish. That is because these drillers wouldn’t come back to start such rigs if the price has not increased. With increased prices comes an increase in the amount of oil rigs. This is especially true if the price of oil gets over $50 a barrel. If that happens, then the oil rig count should increase even more. Hopefully, not many oil rig counts will all rush in at once. With all the rigs starting up it could bring about fear once again about the global oil glut. In the short-term, the increased rigs shouldn’t have too much of a negative impact on the price of oil. Although, that highly depends upon how many rigs are added this year. The key is to reduce the amount of supply, which in turn should bring the price of oil higher in the long run.
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