Crude oil prices have continued to trade in the green this week despite the latest industry reporting showing increased stock levels. The weekly report from the Energy Information Administration was released yesterday. It showed that US crude inventories unexpectedly rose 5.4 million barrels in the week ending May 10th. This figure was in stark contrast to the expected 800k barrel decline. It has now taken inventories to their highest level since 2017.

SPR Releases Oil

The increase in inventories came during a release from the national emergency reserve which added around 1.8 million barrels. The US Energy Department notified the market in February that it would be offering around 6 million barrels of sweet crude for delivery in May. The Strategic Petroleum Reserve added 1.8 million barrels of supply over the week in a sale which was approved under a former law aimed at raising funds to modernize the site.

Crude oil inventories which, excluding the SPR supply, rose to 472 million barrels last week. They are now sitting 2% above their five-year average for this time of year. Furthermore, they are at their highest level since 2017. Crude stocks at the Cushing delivery hub in Oklahoma increased by 1.8 million barrels to 47.8 million barrels, their highest level since December 2017.

US Crude Exports Surge

The data also showed that net US crude imports were down over the week, falling 106k barrels per day. On the other hand, exports surged to over 1 million barrels per day. At a little under 3.4 million barrels per day, exports were just shy of their record highs, set in February, last week. Refinery crude runs were also up 271k barrels per day with refinery utilization rates jumping 1.6% to 90.5%, their highest level since February.

Gasoline Stocks Return to Drawdown

However, the report wasn’t all bearish. Gasoline stocks were down by 1.1 million barrels over the week. This is in stark contrast to the 299k barrel drawdown the market was looking for. This is a good sign, just ahead of summer driving season, with gasoline stocks now at 225 million barrels, roughly 2% below their five-year average for this time of year. Distillate stockpiles, including heating oil and diesel, increased by 84k barrels over the week. This is again in contrast to the 1 million barrel drawdown the market was looking for.

Middle East Tensions Still Supporting

Despite the bearish report, oil prices remain supported at current levels due to ongoing tensions in the Middle East. News that the US has deployed warships to the region last week was followed by news of Iranian attacks on four Saudi oil tankers this week.  Fears of conflict in the area have fuelled supply concerns which are, for now, trumping the build in US crude stocks. Furthermore, expectations that OPEC will extend its current production cuts when it meets in June are also keeping oil prices underpinned, despite Trump’s constant calls for increased OPEC production.

Technical Perspective

The sell-off in crude was halted into a test of the 60.50 level support. Price has been trading in a corrective bull flag formation over the last month and is now testing the upper channel line, suggesting the risk of a break higher. If we break above the channel top, bulls will be looking for price to trade back above the 64.38 level and the yearly highs to confirm a resumption of the longer term bullish trend.