Oil prices fall, snap rally, following pickup in crude stockpiles
London (Mar 2) Oil prices fell on Wednesday, ending a recent rally after an industry group revealed a larger-than-expected increase in U.S. crude stockpiles. That keeps longer-term inventory issues top of mind for this market even as global production cut hopes had lifted prices in recent sessions.
The American Petroleum Institute reported late Tuesday that U.S. crude stocks grew by 9.9 million barrels last week. That was much higher than the 2.6 million-barrel expansion estimated by analysts in a Wall Street Journal survey ahead of the official data by the U.S. Energy Information Administration later on Wednesday.
“U.S. crude oil inventories increasing is almost becoming a norm,” said Daniel Ang, analyst at Phillip Futures.
Brent crude LCOK6, -0.46% the global oil benchmark, fell 1.1% to $36.40 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures CLJ6, -1.40% were trading down nearly 2% at $33.73 a barrel.
As of last week, total U.S. crude inventories stood at 507.6 million barrels, a weekly high. Historical monthly data shows inventories last surpassed 500 million barrels in 1930.
With API data almost three times higher than the expected, market participants should brace for volatility around the release of the official EIA data, said Michael Poulsen, oil analyst at Global Risk Management.
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U.S. oil production has tapered gradually from a peak last year, but many shale producers remain resilient despite falling revenue as they have increased their efficiency. Production has hovered around 9.1 million barrels a day in recent weeks, down from 9.7 million in April last year.
Oil prices have been supported in recent weeks by hopes that major suppliers would curtail their output in a bit to raise prices. Prices rose to two-month high on Tuesday after Russia’s energy minister said a “critical mass” of oil-producing countries—which together produce around 73% of the world’s oil—had agreed to hold output at January levels.
The pact, however, is conditional on the participation of other oil producers. Iran has confirmed that it won’t join and will continue to pump until its production returns to about 4 million barrels a day.
Market observers say capping production at January levels won’t have any immediate impact on the supply glut because many countries were producing at a high level. Russia’s January output reached record high of 10.88 million barrels.
“The fact they have all come together is a step in the right direction,” said Virendra Chandra, an Energy Aspects analyst.
Even if the agreement succeeds in raising prices in the short-term, analysts say the flexibility of the U.S. shale industry would prevent a sustained rebound.
“The oil market has seemingly found its footing,” said Seth Kleinman, analyst at Citi Research. But, he added, prices of over $40 a barrel “would prompt shale producers to reverse many of the production cuts that are supporting the rally.”
Nymex reformulated gasoline blendstock for April RBJ6, +0.67% — the benchmark gasoline contract — fell 0.1% to $1.30 a gallon.
ICE gas oil changed hands at $324.50 a metric ton, up $1.50 from the previous settlement.
Source: MarketWatch
