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Oil Prices Fall On Rising Crude Inventories

The Energy Information Administration rattled oil bulls by reporting a build of 1.9 million barrels in U.S. crude oil inventories for the week to February 2. The report comes a day after the release of the latest Short-Term Energy Outlook that saw the EIA projecting local oil production will hit the 11-million-bpd mark late this year, with the average for the year seen at 10.6 million bpd.

Prices felt the blow of these revised projections and will likely continue to feel it for a few more days. At the time of writing, West Texas Intermediate traded at US$63.84 per barrel, with Brent at US$67.55 a barrel.

The inventory report by the EIA is once again in conflict with figures from the American Petroleum Institute, which surprised analysts with a 1.05-million-barrel decline, versus expectations for 3.19 million barrels more. Analysts expected the EIA to report a decline of 480,000 barrels. During the first month of the year, the EIA reported a total draw of 6.1 million barrels, with three weeks of draws since January 1, and one week of a build.

Gasoline stockpiles continued to increase last week, the EIA also said. The build was a hefty 3.4 million barrels, following three weekly builds since the start of 2018 and one weekly draw, of 2 million barrels, reported last week. Related: China’s Becomes World’s Next Top Oil Importer

While the market is still digesting the STEO projections, the impact from EIA’s weekly inventory could still be significant due to the size of the build. Gasoline figures are also bound to affect prices.

Speaking of gasoline, production increased last week, averaging 10.1 million bpd, versus 9.6 million bpd a week earlier, with refineries processing some 16.8 million bpd of crude oil, compared with 16 million bpd a week earlier. Given the increase in production of the fuel, the build in inventories should weigh further on crude oil prices.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on February 07 2018 said:
    The EIA and API are performing “a good cop bad cop” act when it comes to their announcements about a build in US crude oil and products inventories. One day the API announces a draw of 1.05 million barrels (mb) to be trumped the following day by the EIA reporting a build of 1.9 m in US crude oil inventories.

    This hype is not limited to the US oil and gasoline inventories but also extends to increases in projections of US oil oil production. The earlier projection by the EIA was that US production will average 10.3 million barrels a day (mbd) in 2018 rising to 11 mbd by December 2019. Now the EIA has outdone itself by projecting oil production will hit 11 mbd late this year.

    And the hype continues unabated almost on daily basis as if both the EIA and the IEA believe that by repeating their claims the global oil market will buy them but to no avail.

    The oil prices did not fall in the last two days because of the EIA’s revised projections but because of the turmoil in the Wall Street and other global financial markets.

    Oil prices don’t exist in isolation. Like everything else, they are vulnerable to volatility in the financial markets particularly if here is apprehension in the markets that the Wall Street bubble may burst suddenly with adverse impact on the global economy as was the case in 2008.

    Oil prices will soon recover their recent losses and will continue their surge towards $70/barrel and beyond in 2018 underpinned by very positive fundamentals and re-balancing in the market.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Johnny on February 07 2018 said:
    Just to clarify.1.9 millions of barrels is little bit less than one single full loaded VLCC ship.
    That means increment of inventories is very small,negligible.Not even more than one single ship.
  • the masked avenger on February 07 2018 said:
    Uhh, mamdouh is flashing his big title again. Oil and gas rise, consumption drops. No news her.

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