Crude in storage sinks below year-ago levels
Oil prices spiked as much as 3% Wednesday following news from the EIA that the number of barrels in storage declined despite analyst expectations of a build. The EIA reported a draw of 5.2 MMBO compared to an expectation of a 2.2 MMBO build for the week ended October 14.
The draw is especially surprising given that refiners are going into seasonal maintenance, which often causes more crude to move into storage. Refinery runs have fallen since the start of September, with the government agency reporting 88% capacity utilization last week.
With a total of 468.7 MMBO in storage, U.S. crude oil inventories are now lower than a year ago, and within the five-year average.
There was a build in gasoline stores, however, curbing some of the enthusiasm around today’s news. The EIA reported 2.5 MMBO of gasoline added to storage compared to an expected 1.3 MMBO draw.
“While the headline number was bullish, we wouldn’t call it extremely bullish given the large gasoline build,” said Tariq Zahir, a trader at Tyche Capital Advisors, told CNBC.
Crude oil imports were also down this week, and exports of U.S. crude oil abroad climbed higher, signaling increasing competition from U.S. producers in other parts of the world. Some are concerned that higher prices may continue to stoke the flame of U.S. production and contribute to the global glut, however.
Many investment banks, including Goldman Sachs, have warned that OPEC’s plan to reduce production could be self-defeating as higher prices allow for more production in the U.S., stripping the group of some of the market share it has fought so hard to claim.
Lower levels of investment in new production could tighten markets more quickly though.
”There is a strong possibility that global demand is already outstripping daily oil output,” Phil Flynn, senior market analyst at the Price Futures Group, said in a note. “Extraordinary cutbacks in global energy spending (are) starting to show up…We are seeing U.S. oil supply tighten very quickly.”
