Oil Prices Staying Lower For Longer
Prices in the $50's and $60's are low compared with recent history.
[This article originally appeared on HardAssetsInvestor.com and is republished here with permission.]
The Department of Energy reported this morning that in the week ending June 12, U.S. crude oil inventories decreased by 2.7 million barrels, gasoline inventories increased by 0.5 million barrels, distillate inventories increased by 0.1 million barrels and total petroleum inventories increased by 2.7 million barrels.
Crude oil sold off after the release of the latest inventory figures. After a volatile 10 months through April, prices haven't done much during the past several weeks. Instead, both Brent and WTI have formed a comfortable trading range as traders assess the still-uncertain fundamental backdrop.
Last week, we noted that Brent is still in an uptrend from a technical perspective. Prices have managed to stay above an upward-sloping trendline that extends back to January, as can be seen from the chart below:
BRENT 
WTI 
Prices must continue to remain above this line to keep the uptrend intact. Better yet, at some point, bulls will want to see Brent make another run at the May rebound-high at $70.
On the other hand, if prices fall below the trendline, as we suspect they may, it doesn't necessarily mean prices will plunge, but it does suggest that the easy upside has already been captured.
During the past year, we've repeatedly opined that we expect this downturn in crude oil prices will be longer lasting than many appreciated. We've said that prices will stay lower for longer; with crude oil currently fluctuating in the $50's and $60's, that's precisely what is happening.
While up from the cycle-low in the $40's, oil prices are still relatively low when compared with where they were since 2010. We expect they will remain this way as U.S. production continues to grow and traders begin to appreciate how resilient the oil boom is.
Turning to this week's EIA inventory figures, total petroleum inventories in the U.S. increased by 2.7 mmbbl, against the five-year average of a 5.9 mmbbl increase. In turn, the inventory surplus decreased to 151.9 mmbbl, or 13.8 percent, against the five-year average.
Crude oil inventories fell by 2.7 mmbbl, against the five-year average of a 0.6 mmbbl increase. In turn, the surplus in the crude category narrowed to 88.6 mmbbl, or 23.4 percent.
Regionally, inventories inside the Midwest rose, while inventories outside the region fell.
Gasoline inventories rose by 0.5 mmbbl against the five-year average of a 0.1 mmbbl increase. Gasoline inventories now have a surplus of 3.6 mmbbl, or 1.7 percent. Distillate inventories rose by 0.1 mmbbl against the five-year average of a 0.5 mmbbl increase. In turn, the distillate surplus now stands at 1.4 mmbbl, or 1 percent.
Demand
Total petroleum demand in the U.S. climbed to 20 mmbbl/d, while gasoline demand dropped to 9.2 mmbbl/d and distillate demand inched higher to 4.1 mmbbl/d. On a four-week rolling basis, total demand was up by 5.2 percent from last year. On that same basis, gasoline demand was up 3.3 percent and distillate demand was down by 2.1 percent.
It's worth noting that these figures may be overstated due to the EIA's methodology for calculating demand.
Imports
Crude oil imports rose by 0.4 mmbbl/d to 7.1 mmbbl/d. On a four-week rolling basis, imports have averaged 5.3 percent below the year-ago level.
Refinery Activity
Refinery utilization ticked down from 94.6 to 93.1 percent. Utilization is above the year-ago level and above the five-year average. Gasoline production fell to 9.7 mmbbl/d, while distillate production edged down to 5 mmbbl/d.
Miscellaneous
U.S. crude oil production edged down to 9.59 mmbbl/d, up 21,000 barrels per day from the previous week's 40-year high. Since the start of the year, output has averaged 1.1 mmbbl/d, or 13.4 percent, above the same period a year ago.
Inventories at the Nymex delivery point in Cushing, Oklahoma, rose by 0.1 million barrels to 58.1 million barrels, or 67.8 percent of the EIA's estimate of capacity. Overall, Midwest inventories rose by 0.5 million barrels to 139 million barrels, or 81.8 percent of estimated storage capacity.
Front-month WTI calendar spreads remained in contango at +$0.48.
Front-month Brent calendar spreads remained in contango at +$0.79.
West Texas Intermediate's discount to Brent decreased week-over-week from -$4.69 to -$3.66. WTI's discount to Louisiana Light decreased week-over-week from -$4.20 to -$3.35.
The Baker Hughes oil rig count decreased by seven to 635 last week.
Baker Hughes Oil Rig Count
