Its been another frustrating week for crude traders given the initial rally in the market, and subsequent retracement lower.

Oil was boosted mid-week by the latest industry reporting which showed an unexpected drawdown in US crude stocks. The Energy Information Administration’s report, covering the week ending August 16^th, showed US crude stores falling by 2.7 million barrels. This was greater than the 1.9 million barrel draw the market was looking for. It also marks the second consecutive week of declines in US crude stores.

Notably, the report showed that crude levels at the Cushing delivery hub in Oklahoma fell for a seventh consecutive week. They declined by 2.5 million barrels and now sit at 42.3 million barrels. This is their lowest level since February. The declines here have been attributed to the starting of the pipelines from the Permian region which mean that a reduced number of barrels now go to Cushing.

Gasoline Stores Rose

Despite the drawdown in crude stores, the report showed that gasoline inventories were higher over the week. Gasoline inventories rose by 312k barrels, a greater jump than the 169k barrel gain forecast.

Meanwhile, distillate stockpiles were also higher. Distillates, which include diesel and heating oil, rose by a solid 2.6 million barrels. This was far greater than the 314k barrel increase forecast.

The EIA also reflected a decline in net US crude imports, which fell by 616k barrels per day.

Meanwhile, US crude production remained steady at 12.3 million barrels, just 100k barrels below all-time highs.

Refinery crude runs were up by 400k over the week. Refinery utilization rates rose by 1.1% to 95.9% of total capacity.

Risk Appetite Supporting Oil

Crude prices have also been boosted over the week by the general improvement in risk appetite. Equities prices have recovered this week, following sharp losses last week. This is because the market is striking a more optimistic tone over the outlook for US/China trade negotiations.

The two sides are scheduled to meet for a further round of talks in September. The markets are welcoming the absence of negative headlines, showing that tensions have eased, for now.

Earlier in the week, Trump declared that although he is not yet ready to make a deal with China, talks are progressing well. The potential for a trade deal is helping keep crude prices bid, given that China is the largest global consumer of oil.

The demand outlook for oil ties in heavily to expectations for the Chinese economy. As such, plenty of two-way risks remain around the ongoing trade story as any breakdown in talks would be heavily bearish for crude.

Technical Perspective

Following a brief move above the bearish trend line from July highs, crude is now back below the trendline. However, today, it is fighting to stay above the 55.81 level. While above here, focus is on a further grind higher towards the 58.01 level net. There, we also have the bearish trend line from year to date highs offering resistance. To the downside, 50.67 remains the key market to watch.