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Oil falls on stock builds, US-China tensions

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Oilfield Technology,

Oil prices fell this morning as industry data hint a crude stock build in the US and as the potential for US-China tensions rises.

Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, has commented on these developments:

"Now, that’s a day when the oil market appears to be hit from both sides. The East and the West.

On the East, although we don’t really believe that usual periodical tensions between the US and China are much to account for, something unusual happened. China made the move to approve a security law in Hong Kong that the latter’s allies may find hard to swallow. It’s not unthinkable that trade sanctions may follow, and such a development will surely affect demand and the oil market balances. Traders know that and such news were not exactly what they wished for their portfolios, in a time when a price recovery is what the market needs most.

On the West, just when the market thought that demand was getting strong enough to reduce the crude stock builds in the US, the API group said yesterday that last week’s stocks will likely rise by 8.7 million bpd. Such a development was not expected, especially after weeks of stock draws. But of course it remains to be seen if such build will be realised. It wouldn’t be the first time that API’s projections don’t match EIA reported data.

Gasoline may also be partly behind today’s price move.

Total gasoline stockpiles starting climbing higher two weeks ago, snapping previous weeks of consecutive declines. Also, distillate stockpiles continued their upward trend. Builds in gasoline inventories were driven by demand taking a surprising step back after four weeks in forward motion.

Despite the lockdown measures being progressively lifted, gasoline demand fell. Things aren’t looking better outside the domestic market – demand for US products abroad fell 250 000 bpd two weeks ago. European imports of oil products from the US slumped to the lowest level since September 2017, when Hurricane Harvey hit the US Gulf Coast. For week ending 22 May we expect gasoline demand to register a moderate decline as the Memorial Day weekend failed to deliver the most hoped boost road fuels demand. Memorial Day marks the beginning of the summer driving season and it is usually one of the busiest times on the road. This year gasoline demand did not benefit from the seasonal increase from the holiday as people opted to stay close to home instead of driving long distances around the country.

What do higher stock levels and a real potential US-China international trade spat do to prices. You guessed it, you saw it this morning, prices take a hit.

Now all eyes are on what EIA reports later today and on… Twitter."

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