Oil inventories on the U.S. Gulf Coast have grown to the highest in about ten years, adding 20 million barrels since the beginning of the month.
The increase is due to stronger export demand from Asia, directing more barrels to the export hubs along the Gulf Coast. However, the buildup is temporary, Bloomberg reports, as refiners begin to ramp up operations after the end of seasonal maintenance.
The increase in oil supplies directed to the Gulf Coast for exports and for local processing seems to be one of the reasons behind the substantial decline in oil inventories at Cushing, Oklahoma—the delivery point for West Texas Intermediate contracts.
In early October, Bloomberg reported inventories at Cushing had been drawn down by the most on a weekly basis in five years, dropping to the lowest since 2018.
Meanwhile, Gulf Coast refiners continue to struggle to secure all the crude oil supply they need in the wake of a devastating hurricane season that cost the industry the loss of 30 million barrels in total supply. OPEC+ imports are also lower, Bloomberg reported earlier, and imports from Latin America are also lower.
The inventory drawdown at Cushing served to push prices higher earlier this week as it indicated continued strong demand in the context of tight supply in the latest signal that oil markets are not perfectly balanced yet.
However, prices retreated on news that Iran and the EU were planning to return to the nuclear deal negotiation table. This, to oil traders, means more oil may be coming to markets soon, although the successful completion of the talks is far from a certainty.
"As long as they are talking, there is a chance a deal gets done," Bob Yawger from Mizuho Securities told Bloomberg.
Meanwhile, markets will remain volatile until OPEC+ interferes, according to another analyst.
"Only if OPEC (the Organization of the Petroleum Exporting Countries) intervenes with more supply of crude or if COVID rears its ugly head again, curbing demand, this high volatility will come off," Mukesh Sahdev, head of downstream at Rystad Energy, told Reuters.
By Charles Kennedy for Oilprice.com
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