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Written by Sumit Roy  |

July 20, 2011

Crude Oil Report: Brent Coalesces Near $119

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U.S. crude oil inventories outside of the infrastructure-constrained Midwest region are falling rapidly.

The Department of Energy reported this morning that in the week ending July 15, 2011, U.S. crude oil inventories decreased by 3.7 million barrels, gasoline inventories increased by 0.8 million barrels, distillate inventories increased by 3.4 million barrels and total petroleum inventories increased by 3.8 million barrels.

Crude oil, which was already higher ahead of the report by close to $1.50 — with Brent near $118.50 and WTI near $98.50 — managed to hold on to its gains after the release.

This past week was fairly uneventful for crude, which contrasts with the several tumultuous weeks before that in which we saw big moves up and down amid an OPEC meeting and surprise IEA stockpile release.

Assuming we don’t see any more surprises, oil may drift higher on the back of still-robust demand growth from emerging markets and ongoing Libyan supply disruptions. According to the latest IEA figures, global oil demand may outstrip global oil supply by 1.3 mmbbl/d this quarter.

Recent price action has seen Brent bounce between $115 and $120, with negative European news flow pushing prices to the downside. But each time prices dipped, buyers quickly stepped in and prices swiftly bounced back.

Thursday’s EU Summit may play a big part in determining whether Europe’s debt crisis stabilizes or spirals out of control. Assuming it’s the former, strong underlying fundamentals for crude should eventually allow prices to break through the $120 level and move up toward this year’s high of $127.

Turning to this week’s EIA inventory figures, total petroleum inventories in the U.S. increased by 3.8 mmbbl against the five-year average of 3.2 mmbbl. In turn, the surplus over the five-year average was only up fractionally to 14 mmbbl, or 1.3 percent.