Crude oil prices were boosted this week in response to the latest industry data which showed a reduction in stockpiles. The weekly Energy Information Administration report showed that in the week ending March 8th, US crude inventories fell by 3.9 million barrels. This was well below the expected increase of 2.7 million barrels which the market was looking for.

In terms of looking at the data on a regional basis, the heaviest declines were in the Gulf Coast. This saw a stockpile reduction of over 5 million barrels. Stockpiles in the East Coast and Midwest regions both saw increases while inventory at the Cushing delivery hub in Oklahoma decreased by nearly 700k barrels. This marked their first drawdown in a month.

US Crude Production Down

The data also showed that US crude imports remained steady over the week, rising by 2000 barrels per day. Crude production in the US actually posted a slight decline, falling by 100k barrels per day from the recent record high levels of 12 million barrels per day. Utilization rates rose 0.1% to 87.6% of capacity as refinery runs increased by 30k barrels per day.

Gasoline Stocks Down

Indeed, gasoline stockpiles also saw heavy reductions, falling 4.6 million barrels over the week. This was well below analyst expectations for a 2.5 million barrel drop. However, distillate stockpiles, which include diesel and heating oil, rose over the week by 383k barrels. This was in contrast to analyst expectations for a 1.9 million barrels drop.

Looking ahead, the fundamental backdrop seems to be supportive of higher oil prices. Refiners are starting to slow down operations coming out of maintenance. In addition, the weight of OPEC cuts as well as restrictions in Venezuelan supplies are starting to be properly felt. Therefore, we are likely to see higher prices going forward, despite still record high US production.

OPEC Cuts To Be Extended?

The current supply cuts undertaken by OPEC and a group of allied nations led by Russia are scheduled to run for just six months. However, Russian news agencies have been reporting this week that Saudi Arabia, the largest OPEC producer, is planning to extend the cuts until year-end.

Venezuela Sanctions Impacting Market

Alongside the OPEC supply cuts, the absence of supply from Venezuela is also boosting the market. US sanctions, which are crippling the already broken economy, have seen a dramatic decrease in exports from the oil-rich nation. This is because suppliers are unable to fund the export operations.

Technical Perspective

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Oil prices are fast approaching a key juncture at the retest of the broken bullish channel base. If price can break above structural resistance and back above the channel low, we could see the current rally turning into a resumption of the bullish move off 2015 lows.

However, if price fails at the retest f the broken bullish channel, we could start to see a reversal lower. We could see a continuation of the bearish move which started towards the end of last year. For now, the rally seems strong. However, there are plenty of overhead levels offering resistance which could cause an issue for bulls.