Crude oil prices were knocked sharply lower this week as the latest industry reporting weigh on sentiment. The weekly Energy Information Administration report showed that US crude stores unexpectedly rose, once again, by 4.7 million barrels in the week ending May 17. This figure was in stark contrast with analysts’ expectations for a decrease of 599,000 barrels. The latest surplus has boosted overall crude inventories, excluding the US government’s Strategic Petroleum Reserve, to 476.8 million barrels. This is their highest level since July 2017.

Strategic Petroleum Reserve Sales Continue

Part of the increase was as a result of sales by the SPR which supplied 1.1 million barrels last week. This marks its fourth consecutive week of sales. However, the broader increase in crude stores has been attributed to weak refinery runs. These have been lower than usual for this time of year, especially in the Midwest where refinery usage has fallen to its lowest level since 2013.

Refinery Rates Down

Refinery utilization rates have fallen over the year due to seasonal maintenance. However, they have scarcely pierced above the 90% even as the market prepares for peak fuel demand season over the summer. Over the week, refinery crude runs fell by 98,000 barrels per day and rates fell 0.6% to high 89.9% of total capacity. Rates in the Midwest fell to 82.7% of capacity. This figure marks their lowest for the month of May since 2013.

Consequently, Midwest crude inventories jumped last week to 142.4 million barrels. This is their highest level since November 2017. On the other hand, gasoline inventories in the same region slumped to 47.4 million barrels. This is their lowest weekly levels for the month of May since 2014.

Finally, Crude inventories at the Cushing, Oklahoma, delivery hub soared by 1.3 million barrels. Inventories reach their highest levels since December 2017, at 49.1 million barrels per day.

US Crude Imports Down, Production Up

Elsewhere, the report showed Net US crude imports dropped last week by 244,000 barrels per day. Crude production rose again by 100,000 barrels per day to 12.2 million barrels. This is just under the record high.

Gasoline inventories also rose by 3.7 million barrels. Analysts’ expectations shown in a Reuters poll contrasted this data. They had forecasted an 816k barrel drop.

Distillate stockpiles, including diesel and heating oil, also rose by 768,000 barrels. This was again, in contrast with expectations for a decrease of 48,000 barrels, according to the EIA.

Middle East Tensions Offer Upside Pressure

The report would likely have had a far more bearish impact on price were it not for ongoing, rising, tensions in the Middle East, which are keeping supply concerns alive.  On Monday, Trump threatened Iran with “great force” if it attacks any US interests in the region, following the deployment of US warships to the area.

Trade War Woes Still Weighing on Sentiment

However, the upward pressure on price is currently being offset by growing concerns of the global economy in light of the escalating trade war between the US and China, following retaliatory tariffs from China.

Last year, oil prices plummeted as the trade war raged on. Furthermore, there are fears that unless a deal can be done, we are headed for a similar situation with oil and equities in the near future.

Technical Perspective

Crude has now potentially put in a lower high against the 66.50s 2019 peak. If we break below the 60.41 level support this could pave the way for a much larger correction lower in oil, targeting 58.13 first, where we also have the bearish channel low.

For now, though, the bullish channel can still be viewed as a corrective bull flag formation to the strong bullish move so far this year, with bulls waiting for a topside break to confirm a resumption of the trend.