The U.S Energy Department has released US inventories data which shows a decline of 5.932 million barrels during the week ending August 25. It is the ninth consecutive weeks of decline and crude oil has lost 1% and is now challenging its 6-week low.
The tropical storm Harvey is ravaging Houston and some US refineries out there are now closed temporarily. Yet, markets are clearly not fearing any potential shortages within the short-term. Indeed, Crude oil is most of the time very easy to replace. This is why we think that any shortage longer than a week or ten day will drive crude oil prices higher. For the time being, this natural disaster is not particularly weighing on prices.
The trend in the US rig count is bearish due to sustainable low prices. Now markets will start pricing in the next OPEC meeting late November. We do not consider that any production cut will be applied. The market share war will continue and no relief to the US refinery industry are on the roadmap.
Anyway, we keep on believing that the upside pressures on oil are likely. In particular, at the moment, there is a seasonal effect that is back. In September the demand for crude oil is likely to increase as the summer season is over and overproducing oil is definitely not a viable long-term project.
By Yann Quelenn