Oil Price Prediction – Oil Remains Under Pressure After EIA Report

Key Insights

• Crude inventories increased by 5.5 million barrels, but gasoline inventories declined by 5 million barrels. 
• Domestic oil production increased by 0.1 million bpd. 
• Hungary paid transit fees to restart the flow of Russian oil through the “Druzhba” pipeline. 

Domestic Oil Production Grew To 12.2 Million Bpd

WTI oil is trading near daily lows after the release of the EIA Weekly Petroleum Status Report, which indicated that crude inventories increased by 5.5 million barrels from the previous week. Analysts expected that crude inventories would remain unchanged.

Gasoline inventories decreased by 5 million barrels, while distillate fuel inventories grew by 2.2 million barrels. The decline of gasoline inventories provided some support to oil prices, but it remains to be seen whether this support will be sustainable.

Importantly, domestic oil production increased from 12.1 million bpd to 12.2 million bpd. EIA noted that this week’s domestic crude oil production estimate incorporated a re-benchmarking that affected estimated volumes by less than 50,000 bpd. Anyway, the increase in domestic oil production is a bearish catalyst for the oil market.

Hungary Pays For Transit Of Russian Oil

Yesterday, Russia’s Transneft said that the transit of Russian oil to EU was halted as Ukraine did not get transit payments due to sanctions. Traders wondered whether it was a temporary problem or a new way to put more financial pressure on Russia.

Today, Hungary’s MOL paid the transit fee to Ukraine. The payment will allow oil to flow for the month of August. At this point, it looks that the problem is solved for the near-term. In the longer term, Russia and its customers will likely work for a solution to pay transit fees without extraordinary measures.

This is a bearish development for the oil market, which shows that Hungary will do everything to get Russian oil and will not allow trade to be disrupted. Not surprisingly, yesterday’s optimism quickly evaporated.

Interestingly, the weak dollar failed to provide any support to oil markets, which means that traders remain worried about the strength of the oil demand in the second half of this year.

From a big picture point of view, oil remains in a downside trend and has a good chance to settle below the $90 level.

For a look at all of today’s economic events, check out our economic calendar.