EIA Data In Focus After API Reports Huge Fall In Crude Oil Stocks – Crude Oil Expected to Extend Gains
Oil prices are on course to register another up day for a fourth day out of the last five trading days, pulled up by reports from both the demand and supply sides. While China is taking advantage of depressed foreign crude prices, a steep fall in U.S oil stocks once again fuelled speculation over a tightening crude market which has been a hot topic since talks of an output freeze deal were revived recently.
Data released on Thursday by the General Administration of Customs reported that China’s oil imports rose to 32.85 million tons in August, which is equivalent to 7.8 million barrels a day. The world’s No. 2 oil consumer imported the greatest amount of crude oil since December 2015, and witnessed an increase of 7% from the same month a year ago. Oil imports to China have been high all year due in part to Beijing’s policy of filling up on its strategic oil reserves but also because of strong buying from refiners who cannot resist the appeal of low priced crude.
Independent refineries, known as “teapots”, account for about a fifth of China’s refining capacity and have been gaining market share since Beijing granted them crude import licenses. According to market sources, “A lot of the teapot refiners that were under maintenance are coming back into operation, and a lot of the state-owned refiners are returning to normal levels of operation”.
After two weeks of rising crude stocks in inventory, data from the U.S. Energy Information Administration due during the U.S. trading session today, is expected to confirm a decline in U.S inventories, as reported by data from the American Petroleum Institute on Wednesday. The industry group indicated that U.S crude stocks dropped by 12.1 million barrels last week, which is starkly contrasting with expectations of an increase of 200,000 barrels. Should the data from the EIA confirm the drawdown, it will be the largest weekly decline since April 1985.
Yesterday, the Canadian Association of Oilwell Drilling Contractors updated its drilling activity forecast for the fourth quarter of this year. The latest report shows a 25% drop in new oil and gas wells drilled so far this year, compared to its original forecast in November 2015. The report stressed that “2016 will be the worst year in our recorded drilling activity history.” The CAODC revised its estimates for the number of wells drilled this year down to 3,562 – from 4,728 wells in initial forecast, citing languishing commodity prices.
Fig: WTI D1 technical chart
WTI crude resumed its rally after a slide in the mid-late August period, that sent the price back below the 23.6% Fibonacci retracement level. The current up-wave has taken crude prices past this level and at the same time, the price action has crossed over the two MAs, confirming the upward reversal. The wide distance between the %K line and %D line in the stochastic chart is powering buyers, suggesting further advances.
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