Recent data from the Energy Information Administration (EIA) reveals a notable decline in commercial crude oil inventories in the United States, surpassing market expectations. During the week ending last Friday, the inventory of crude oil, excluding the strategic petroleum reserve, decreased by 4.6 million barrels, bringing the total down to 426 million barrels.
Analysts had anticipated a more modest drop of 2.2 million barrels, according to a Bloomberg poll, highlighting a significant sentiment shift in the oil markets. In addition to crude, the EIA reported a reduction in distillate fuel stocks, which fell by 3.3 million barrels week over week. Meanwhile, total motor gasoline inventories experienced a decrease of 1.6 million barrels.
On a more positive note, propane and propylene stocks increased by 2 million barrels, which marked a promising 14% rise above the five-year average for this time of year. Overall, the total commercial petroleum inventories saw a reduction of 5.9 million barrels last week. Refinery activity also reflected these dynamics, with crude oil refinery inputs averaging 16.7 million barrels per day.
This represented an increase of 222,000 barrels compared to the previous week's average, with refineries operating at a capacity utilization rate of 92.3%, up from 91.5% the week prior. The increase in gasoline production to an average of 9.8 million barrels per day (up from 9.7 million barrels) further indicates a response to fluctuating demand, while distillate fuel output rose slightly to 4.9 million barrels per day from 4.8 million barrels, as reported by the EIA. Market reactions were evident as West Texas Intermediate (WTI) crude oil prices dropped by 1.6%, settling at $72 per barrel by Wednesday afternoon.
Similarly, Brent crude was down 1.4%, trading at $76.12. This downward trend in Brent prices marks the potential for a fourth consecutive session of declines. Ole Hansen, Saxo's Head of Commodity Strategy, remarked in a Wednesday note that Brent crude is “again hovering precariously close to levels that need to hold to avoid a technically driven extension to the downside.” The overall sentiment in the crude oil market remains under pressure, primarily attributed to China’s economic slowdown.
The rapid adoption of electric vehicles and hybrid cars has significantly reduced fuel demand, consequently leading to lower refinery runs and diminished demand for oil. Hansen’s commentary underscores the multifaceted challenges facing the crude oil market at this juncture, indicating a necessity for strategic assessment amidst evolving global economic conditions..