Oil futures fell to their lowest settlement in more than three weeks

RecapOil futures fell on Wednesday, logging their lowest settlement in more than three weeks, pressured by overall losses in the broader financial market, as traders ruminated over the first weekly U.S. crude oil inventory rise in three weeks. At one point during trading, June WTI fell as much as 5.4% amid increasing inflation fears and, as the dollar strengthened. Traders were also keeping an eye on talks between world powers in regard to an agreement that could remove U.S. sanctions on Iran’s crude oil exports. June WTI fell $2.13, or 3.25%, to settle at $63.36 a barrel, while July Brent lost $2.05, or 2.98%, to settle at $66.66 a barrel. Petroleum products also fell, with June RBOB losing .0589 cents, to settle at $2.102 a gallon and June heating oil slipping .0493 cents, to settle at $2.0071 a gallon.

Technical Analysis: WTI breached the lower trend line that forms both the bottom of the ascending triangle and the ascending channel that dates back to the beginning of April. While today’s sell-off is quite impressive, one must bear in mind that the increase in U.S. crude oil inventories and drop in both gasoline and distillate stocks should not be that surprising given the shut-in of the Colonial Pipeline. Looking at PADD 1 distillate and gasoline stocks and discounting stocks for 2020, one might think that we could run into a short fall given the positive economic outlook, as countries come further out of COVID-19 driven lockdowns. However, what is most likely weighing more on trader’s minds, are talks between the U.S. and Iran, which are said to be going well. This could put between 1 and 2 million more barrels per day of crude oil back on the open market. This will cause an issue for OPEC, especially Saudi Arabia, who made the bulk of the output cuts. At this point, we could see a game cat and mouse unfold, which would also involve U.S. producers. Only time will tell. For now, we would continue to look for bottom pickers in this market all the way down to the $60 area. Above $60, support is seen at $62.61. On the upside, resistance rests at $64.06, $65 and $67.98.

Fundamental NewsThe Energy Information Administration said U.S. Gulf Coast gasoline inventories increased to 91.4 million barrels, the highest since August 2020 in the latest week ended May 14th.  The increase came as the Colonial Pipeline was shut due to a ransomware attack.  The report also showed that U.S. East Coast refinery utilization was at 87.2%, its highest percentage since June 2019. U.S. distillate fuel inventories totaled 132.1 million barrels, the lowest since April, 2020, as were East Coast distillate stockpiles, which stood at 36.8 million barrels.

Russian Deputy Prime Minister, Alexander Novak, said there was an oil deficit on the global market even though some countries were recording an increasing number of COVID-19 cases. He added that deficit was helping to reduce a surplus in oil stocks

Iranian oil exports, which have been on an increasing trend while talks make progress on reviving the 2015 nuclear deal, have fallen so far in May, reflecting a decline in Chinese demand.  A trade source said that Petro-Logistics, which tracks oil flows, told its customers Iran's crude exports fell provisionally to zero in May, from around 703,000 bpd in April, citing slowing intake from Chinese independent refiners.

Iran’s lead negotiator, Abbas Araghchi, said documents outlining how to return to the 2015 nuclear deal are “mostly drafted” except for some complicated differences which require political decisions to be made in participants’ capitals.

Colonial Pipeline allocated Cycle 26 shipments on Line 27 and Line 32.

IIR Energy reported that U.S. oil refiners are expected to shut in 704,000 bpd of capacity in the week ending May 21st, increasing available refining capacity by 248,000 bpd from the previous week. 

Early Market Call – as of 8:50 AM EDT

WTI – June $62.79 down 57 cents

RBOB – June $2.0854 down 1.66 cents

HO – June $1.9879 down 1.92 cents

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