May Crude Oil futures broke sharply on Wednesday after the release of a bearish U.S. inventories report. The market was already under pressure ahead of the Energy Information Administration’s weekly report because of Tuesday’s weaker-than-expected American Petroleum Institute report and the stronger U.S. Dollar.
Both inventory reports reignited concerns about supply exceeding demand. With net supply still growing, many traders are starting to believe that the current nine week rally is unsustainable.
The American Petroleum Institute (API), an industry group, said in a report after Tuesday’s oil market settlement that U.S. crude stockpiles rose 8.8 million barrels last week to reach a record high of 531.8 million.
The stockpile growth reported by the API was 5.7 million higher than estimates from analysts polled by Reuters.
According to the U.S. Energy Information administration, U.S. crude stocks rose by 9.4 million barrels the week-ended March 18 to a record total of 532.5 million barrels. Traders were looking for an increase of only 2.5 million barrels.
Offsetting the crude oil build was a 4.6 million barrel decline in gasoline inventories. Weekly production ticked down by about 30,000 barrels per day, the EIA said.
The bearish report from the EIA could be the tipping point for crude oil futures as investors are getting anxious to book profits after the recent large run-up. Crude oil prices are up more than 50% over the past six weeks despite marginal improvements in supply/demand. Much of the rally has been driven by plans engineered by OPEC and other Non-OPEC members to freeze output at January levels.
Traders are also expressing concerns about the planned production freeze meeting planned for April 17. Qatar, which has been organizing the meeting, has invited all 13 OPEC members and major outside producers. The talks are expected to widen February’s initial output freeze deal by Qatar, Venezuela and Saudi Arabia, plus non-OPEC Russia.
The initiative has supported a rally in oil prices, which were about $41 a barrel on Wednesday, up from a 12-year low near $27 in January, despite doubts over whether the deal is enough to tackle excess supply in the market.
Iran has yet to say whether it will attend the meeting. But Iranian officials have made it clear that Tehran will not freeze output as it wants to raise exports following the lifting of Western sanctions in January.