A private survey from the American Petroleum Institute (API) found that crude oil inventory decreased less than expected. The survey estimates changes in inventories as follows: crude oil down 1.6 million barrels, distillates down 1.1 million barrels, and gasoline down 0.9 million barrels. This information comes before the official figures from the U.S. government. The U.S. Energy Information Administration (EIA) will release its official report on Wednesday morning, which is known for being more accurate and detailed.

API and EIA Data

The API gathers data from oil storage facilities and companies, while the EIA relies on data from the Department of Energy and other official sources. The government report not only shows crude oil storage levels but also details about refinery inputs and outputs, plus storage levels for various grades of crude oil. These differences make the EIA report more reliable for understanding the overall oil market. The private survey’s smaller-than-expected crude draw raises concerns. It suggests that demand might be slowing down more than the market had anticipated. This data point should prompt traders to be cautious about holding too many bullish positions before the official report. The EIA’s later data confirmed this trend, but it was even stronger. The EIA reported a surprising inventory increase of 3.7 million barrels, going against expectations for a decrease, which caused West Texas Intermediate crude prices to drop below $78. This trend indicates weakening demand fundamentals in the United States.

Market Implications and Future Predictions

Looking ahead, we are keeping an eye on broader economic challenges, especially when the Federal Reserve might cut interest rates. Recently strong U.S. job data has delayed expectations for rate cuts, boosting the dollar and making oil pricier for global buyers. This situation will likely limit significant price increases for crude oil in the near future. On the supply side, OPEC+ has decided to continue its significant production cuts but plans to gradually ease them starting in October. This might support prices now but could create a bearish outlook for the fourth quarter and beyond. We are considering this future increase in supply in our longer-term derivative positions. In the past, large differences between private surveys and official reports have led to market volatility. Derivative traders might want to use strategies that profit from price fluctuations, like buying straddles, due to high uncertainty around weekly inventory numbers. We expect implied volatility to increase around the Wednesday morning data releases. Global demand also remains uncertain, especially after recent purchasing managers’ index data from China showed an unexpected decline in manufacturing activity for May. This raises doubts about the strength of recovery in the world’s largest oil importer. As a result, we are protecting against the possibility that weak demand from Asia will put additional pressure on the market. Create your live VT Markets account and start trading now.

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