Crude oil inventory draw beats expectations at 2.7 MMBO

Crude oil inventories shrank for the fourth week in a row, according to information released from the Energy Information Administration. The total amount of crude in storage declined 2.6 MMBO, 1.2 MMBO more than economist expected, but WTI prices still fell over $1 per barrel as market watchers point out that the declines may not accurately represent trends.

Crude oil inventories for the week ended December 9, 2016

Over 2 MMBO of Wednesday’s draw came from PADD 5, or the West Coast, according to the EIA, while inventories at Cushing, Oklahoma continued to rise. Oil in storage at Cushing has increased in six of the last seven weeks.

“This week really doesn’t point to an effort to clear inventories from PADD3 (Gulf Coast) like many expected,” said Troy Vincent, analyst at ClipperData.

“The decline in stocks is predominately from the West Coast, while Gulf Coast imports actually ticked higher and stocks only fell 400,000 bpd.”

WTI crude oil price for Dec. 14, 2016

WTI crude oil price for Dec. 14, 2016

OPEC compliance key to bringing down global stockpiles

International crude oil prices were also down over $1 per barrel Wednesday after OPEC signaled a growing oil supply surplus in 2017 if its members do not follow through with production cuts. In its December report, OPEC said that without cuts the 2017 overhang would reach 1.24 MMBOPD, about 0.3 MMBOPD higher than in its previous report.

OPEC pumped 33.87 million bpd last month, according to figures OPEC collects from secondary sources, up 150,000 bpd from October. A report from the International Energy Agency Tuesday put the group’s production even higher for November at 34.2 MMBOPD, also adding downward pressure to oil prices.

The IEA said global oil supply rose to a record 98.2 million bpd in November, with OPEC’s production offsetting declines elsewhere. This stands against expectations of 96.95 million bpd of global oil demand for the fourth quarter of 2016.

Despite this, the IEA said that due to firm demand increases, oil markets could show a shortfall of 600,000 bpd early next year if producers stick to their reduction plans.

Rising interest rates push oil prices down

The Federal Reserve increased its key short-term interest rate for the first time in a year Wednesday, also adding to downward pressure on oil prices. Increased interest rates mean a stronger dollar, making commodities traded in the U.S. currency more expensive for holders of different currencies.

Central bank monetary policymakers voted unanimously to increase the target range for the federal funds rate by 0.25%, reports the L.A. Times. Today’s raise was the second increase in more than a decade, and a small signal that the economy is returning to normal after the Great Recession.

“It is a vote of confidence in the economy,” said Fed Chair Janet L. Yellen in a news conference following the policy statement release.

Yellen added that the Fed plans to continue increasing rates gradually, forecasting three rate increases for 2017 as part of a “very modest adjustment.”

Legal Notice