May 8, 2019 11:56 a.m. ET
Inventories: U.S. oil prices had fallen by 7% over the past two weeks following a string of weekly increases in U.S. crude oil inventories that pushed storage to a 19-month high of 471 million barrels. But that trend began to reverse Wednesday as the Energy Information Administration reported an unexpected, 4-million-barrel fall in inventories for the week ended May 3, which put total storage at 466.6 million barrels.
The report also bullishly showed U.S. oil production that recently hit a record 12.3 million barrels a day has fallen back to 12.2 million barrels a day. Additionally, motor gasoline supplied to the market—a proxy for gas demand—jumped to 9.9 million barrels a day, suggesting demand is rising strongly as the summer driving season approaches.
“Prices are near highs of the day after this data because the reduction is stockpiles is obviously a positive,” said Peter Cardillo, chief market economist at Spartan Capital, who said the recently rare reduction in inventories of all three main components—crude oil, gasoline and distillates—was particularly bullish.
Iran and China: Tensions between the U.S. and Iran over sanctions, along with a possible rise in global oil demand if the U.S. and China can agree to a final trade deal, were also propelling prices higher Wednesday.
“The fact that the Iranians are not honoring some commitments from the nuclear deal is raising geopolitical tensions,” Mr. Cardillo said. “And with the U.S.-China trade deal perhaps coming together, that could boost demand out of China.”
In a Twitter post Wednesday, President Trump signaled a China trade deal may be near, despite concerns that his recent threat of higher tariffs on Chinese imports could derail the talks. “China has just informed us that they (Vice-Premier) are now coming to the U.S. to make a deal. We’ll see, but I am very happy with over $100 Billion a year in Tariffs filling U.S. coffers…great for U.S., not good for China!” Mr. Trump wrote.
Infrastructure: A new report from Austin-based Drillinginfo said infrastructure development will play a vital role in America’s energy future as oil production and exports continue to increase. “As U.S. crude oil production grows, all incremental barrels are (and will continue to be) exported,” said Bernadette Johnson, Vice President of Market Intelligence at Drillinginfo. “To facilitate this rapid increase in exports, additional infrastructure will be critical. Without it, operators will be stuck with a valuable product, but limited options of how to send it to market.”
It noted crude-oil exports have been growing since 2017 as U.S. production reached historic levels thanks to growth from prolific shale basins. “Exports to Asia are finding new destinations as China’s imports have declined to virtually zero. Iranian sanctions by the U.S., the situation in Venezuela, and U.S.-China trade wars will play a big role in U.S. exports moving forward.”