Even in long-term bull markets, you are going to have a day like yesterday. Oil and products crashed down to major support as it was hit with a confluence of headlines and bearish weekly Energy Information Administration (EIA) data. Fears of the impact of sanctions on China, Iran, Russia and Turkey did not help and another big drop in U.S. gasoline demand has some worried that U.S consumers were showing resistance to higher pump prices. The reality is that in August, we do start to see a wind down in gas consumption, and petroleum in general, is seasonally weak.

The American Petroleum Institute (API) seemed to signal a drop in U.S. gasoline demand and that was confirmed by the EIA. Week over week, gasoline demand fell by -0.532 million barrels a day, coming in at 9.346 million barrels a day. Gasoline production fell slightly, coming in at 9.9 million barrels per day and still exceeding demand. This led to an inventory increase of 2.9 million barrels last week and is about 4% above the five-year average for this time this year. This seemed to be the most disappointing part for the oil bulls and caused over an 8 cent a gallon washout in the RBOB wholesale futures.

Crude oil supply did fall by 1.4 million barrels from the previous week, but because the API had a much bigger draw and market expectations were for at least a three million barrel drop, it was unimpressed. Cushing Oklahoma stocks fell by only 590,000 barrels, much smaller than the drop the market was looking for. Distillate fuel inventories also came in at a higher than expected 1.2 million barrels last week. Yet, even though the numbers were obviously bearish, based on expectations, there were some things in the big picture that long-term was very supportive. For one, was overall refinery demand.

The EIA said that crude oil refinery inputs averaged 17.6 million barrels per day as refineries operated at an incredible 96.6% of their operable capacity last week. U.S. oil production also fell for the second week in a row, raising some concerns about a leveling off of U.S. output. Production fell by 100,000 barrels a day to 10.8 million barrels a day, this comes as the EIA has already adjusted downward previous estimates of U.S. output. And while Distillate inventory did beat this week they still are a disturbingly low 10% below average. In fact, the market might have been able to focus on the more positive aspects of the report if it were not for all the tariff news.