Oil Rallies on EIA Drawdown

Inventories Fall Across The Board

Crude oil prices have been a little firmer this week, underpinned by a bullish report from the Energy Information Administration.

The EIA reported that in the week ending October 9th, US crude oil inventories fell by 3.8 million barrels. This takes the total position to 489.1 million barrels, the lowest overall inventories level in months. Following this latest decrease, US crude stockpiles are now sitting just 11% above their fiver year seasonal average.

The report showed that US gasoline inventories were also lower over the week, falling by 1.6 million barrels to just 1% above their five-year seasonal average. Distillate stockpiles were also lower, falling by 7.2 million barrels. This is the largest weekly distillate drawdown in months. It takes stockpiles down to just 19% above their five-year seasonal average.

Fresh Lockdown Risks

This latest report comes at a time when markets are increasingly wary over the prospect of fresh lockdowns and the impact they will have on oil demand. In its latest monthly outlook, OPEC struck a more concerned tone, downgrading its demand forecasts for 2021.

The oil producing cartel now believes that the demand recovery will happen at a slower than forecast pace due to the downside risks attached to COVID. With the Western winter months stoking fears of fresh nationwide lockdowns, the demand outlook contains some obvious headwinds.

Demand Improving Though Risks Growing

In terms of current demand, the total products supplied number averaged 18.4 million barrels per day last month, down 12.6% on the same period last year. While still well below pre-pandemic levels, demand has been creeping back up across recent weeks. For now, it remains encouraging.

In terms of gasoline demand, the total gasoline products supplied number came in at 8.6 million barrels per day over the last four weeks. This is down just 7.5% from the same period last year while distillate products supplied averaged 3.9 million barrels. This is down just 3.7% from the same period last year.

In all, this was a firmly bullish report for the crude market and has helped lift prices higher again. However, the broader picture remains tied to the developments within the COVID space which continues to be highly fluid and volatile.

Crude Holds Channel Break

Following the breakout above the local bearish channel which has framed the correction lower from summer highs, crude has subsequently retested the channel which has acted as support.

For now, price remains capped by the 61.8% retracement from 2020 highs.

Currently, the outlook remains bullish with bulls looking for a break above the 42.43 level to open up the way for a continued bull run.