Oil managed to settle above the resistance at $42.50 and continued its upside move as crude inventories declined by 7.4 million barrels.
U.S. Domestic Oil Production Declines To 11 Million Barrels Per Day
WTI oil managed to get above the resistance at $42.50 after API Crude Oil Stock Change report indicated that crude inventories have declined by 8.59 million barrels.
EIA has just released its Weekly Petroleum Status Report which confirmed API numbers.
According to EIA, crude inventories decreased by 7.4 million barrels. This decrease is especially encouraging since crude oil imports have increased by 0.9 million barrels per day (bpd).
A significant decrease in crude inventories at a time when imports increased shows that demand is rebounding.
Meanwhile, gasoline inventories increased by 419,000 barrels while distillate fuel inventories increased by 1.6 million barrels.
Importantly, the U.S. domestic oil production decreased from 11.1 million bpd to 11 million bpd. Now, the market got a confirmation that $40 oil is not sufficient enough to boost U.S. oil production.
This is an important supportive factor since many traders feared that stable oil prices above $40 will cause a jump in U.S. domestic oil production which will lead to increased inventory levels.
The EIA report is certainly bullish as crude oil inventories continue to decrease while U.S. oil production did not manage to get above 11.1 million bpd.
Weak U.S. Dollar Provides Additional Support To Oil
In addition to the bullish inventory report, oil is supported by U.S. dollar weakness. The U.S. dollar continues to decline against a broad basket of currencies, and this downside move supports dollar-denominated commodities as it makes them cheaper for buyers who have other currencies.
The role of U.S. dollar weakness in current oil price upside should not be underestimated. Since the beginning of July, the U.S. Dollar Index has lost roughly 5% which is a major move for the world’s main currency.
The U.S. Dollar Index is currently testing recent lows at 92.5. In case it manages to get below this level, the U.S. dollar will likely gain additional downside momentum, providing more support to oil.
The current downside move of the U.S. dollar has a major impact on commodity markets so traders should watch it closely. In case some catalyst (like an agreement on U.S. coronavirus aid package bill) causes a rebound of the U.S. dollar, oil may find itself under pressure.
Reprinted from FX Empire. The copyright all reserved by the original author.
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