EIA Report Trims Oil’s Post-CPI Gains
EIA Report Trims Oil’s Post-CPI Gains
The numbers surprised observers, with the headline figure showing a build of 3.7 million barrels vs. an expected 1.55 million
- Crude oil prices are cutting gains after a bearish EIA report.
- Crack spreads are dropping as implied demand cools.
- Oil prices may reestablish the May 77/81 range.
Crude oil prices (/CLN4) were up over 1% this morning on optimism that cooling inflation would allow the Federal Reserve to cut interest rates at least twice by 2025. However, the commodity quickly trimmed most of its gains after the Energy Information Administration (EIA) released its weekly petroleum status report for the week ending June 7.
The EIA numbers surprised expectations, with the headline figure for crude oil stocks showing a build of 3.7 million barrels vs. an expected 1.55 million-barrel decrease. The build followed a 1.23 million-barrel increase from the previous week, putting commercial crude inventory, excluding the strategic petroleum reserve (SPR), at 459.7 million barrels.
Fuel products, which can be viewed as a somewhat leading indicator for oil, also saw builds. Gasoline stocks rose 2.56 million barrels, beating the expected 1.25 million-barrel increase and up from a 2.1 million-barrel build the previos week. Distillate stocks rose 881,000 barrels, above the 500,000-barrel build the market expected.
Demand remains weak at crucial time
The EIA report underscored weak demand. Total products supplied—a proxy for implied demand—fell 0.8% over the last four-week period, compared to a year ago. Gasoline’s implied demand fell 1.3% over the same period, while distillate fuel decreased by 3.5%.
Jet fuel was the only bright spot, rising 11% over the same period. However, total jet fuel supply represents roughly a tenth of the total demand for gasoline, indicating that despite its strength, jet fuel alone won't sustain overall oil demand.
The weakness in fuel products was reflected in crack spreads, which represent a refiner’s theoretical profit margin from buying crude oil and selling the fuel product. The 1-1 crack spread between gasoline futures (/RB) and crude oil futures (/CL) fell over 5%, reaching its lowest level since February.
Focus now turns to today’s Federal Reserve announcement, which will unveil new economic, and inflation targets as well as the so-called dot plot.
Crude oil technical outlook
Crude oil’s intraday high failed at the value area high (VAH) before moving back to its point of control (POC). The volume profile for the chart below is set to the option expiration time profile.
With oil prices back in the 77 to 81 range that was carved out through most of May, prices may reestablish within this range until a clearer outlook develops for oil markets.
However, there is an impending death cross, with the 50-day simple moving average (SMA) on track to cross below the longer-term 200-day SMA. Altogether, this puts a neutral to slightly bearish tilt on oil’s technical structure.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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