OctaFX crude oil market update

EIA Report

Yesterday, the U.S. Energy Information Administration (EIA) reported a crude oil inventory draw of 1.7 million barrels (MMbbl) for the week ending October 14. It was a "bullish surprise" as analysts were expecting an inventory build of around 1.4 MMbbl for the period (according to the Reuters survey).
Commercial crude oil inventories now stand at 437.4 MMbbl, which is above last year’s level (+10.9 MMbbl) but still below the five-year average (-7.08 MMbbl). The deficit has started to expand again even as it is already quitelarge for this time of the year. Crude oil production incrfeased slightly to 12.0 MMbbl per day (MMbbl/d). Overall, however, production has stayed essentially flat for the past 27 weeks or so. Refined crude oil products are still in deficit – particularly, in case of distillate fuel oil (see the chart below).

Source: OctaFX calculations based on EIA report

Latest news

Fundamentally, the situation in the market appears to be bullish - particularly, due to OPEC+ production cuts and sanctions against Russia. At the same time, the overall demand situation has brightened a bit. Yesterday, the news surfaced that China was preparing to ease its zero-COVID policy. If indeed China lifts its strict COVID-19 rules, the positive impact on fuel demand will be substantial.
In other news, the Biden administration has approved the release of another 15 million bbl from the Strategic Petroleum Reserve (SPR), as part of the total of 180 bbl release. Although SPR release will satisfy the demand in the U.S. and in Europe, it can only partially mitigate the loss of OPEC+ supply. A hike in winter demand can still lead to a shortage of critical products. 

Price forecast

Oil prices rallied on Thursday with benchmark WTI closing 3.2% higher. Earlier today, oil continued to rally in response to tighter supplies and on news that China is considering a cut in the duration of quarantine for inbound visitors.
Technically, the U.S. WTI crude oil (OctaFX ticker: XTI) looks bullish may attempt to break above the important $87.00 level. If it can manage to consolidate above 87.00, it will almost certainly attempt to re-test the $89.50 area. Only a drop below $85.00 will mark the end of the rebound and will probably open the way towards the $83.00 level.

Source: OctaFx analytics using Trading View