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Crude Oil Prices: Is More Downside Possible?

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Crude oil inventories  

On July 31, the API (American Petroleum Institute) released its oil inventory report after crude oil futures’ settlement on NYMEX. The API reported that US crude oil inventories rose by 5.6 MMbbls (million barrels) on July 20–27. A Reuters survey estimates that US oil inventories could have fallen by 2.8 MMbbls during the same period. The U.S. Energy Information Administration is scheduled to release its oil inventory report on August 1.

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Drivers for crude oil futures  

Brent and WTI oil futures fell 1.1% and 2%, respectively, on July 31. Oil’s bearish drivers include:

  • Crude oil supply disruptions in the Bab el-Mandeb Strait in the Red Sea could be resolved.
  • Japan’s crude oil imports fell 14.7% to 2.4 million barrels per day in June compared from a year ago—the lowest imports since 1968.
  • Higher crude oil production is expected from OPEC, the US, and Saudi Arabia.
  • Russia’s crude oil production is expected to increase to 250, 000 barrels per day in July.

The Energy Select Sector SPDR ETF (XLE) fell ~0.2% on July 31. The companies in XLE produce crude oil and natural gas and provide other energy-related services.

Helmerich & Payne (HP), TechnipFMC (FTI), Concho Resources (CXO), and Cimarex Energy (XEC) fell 2.6%, 2.3%, 2.2%, and 1.7%, respectively, on July 31. These stocks were the top percentage losses in XLE’s holdings on the same day. These stocks account for 4.1% of XLE’s holdings.

EIA’s inventory data  

A larger-than-expected drop in US oil inventories reported by the EIA on August 1 could support oil prices. However, an unexpected rise in the inventories could weigh on oil prices.

Next, we’ll discuss the API’s estimates for US gasoline and distillate inventories.

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