Americas News
Crude Prices Rise Despite Record U.S. Output, Inventory Builds
Despite U.S. crude production hitting an all-time high of 11 million barrels per day (bpd) and news of a surprise 5.8 million build in the country's inventories, oil prices on Wednesday rose, with West Texas Intermediate settling up 68 cents to $68.76 per barrel, and Brent climbing 74 cents to $72.90.
Traders were said to have overlooked the high inventory levels and output as reported by the Energy Information Administration, in favour of focusing on the EIA's disclosure of gasoline inventories falling by 3.2 million barrels, and distillate stockpiles including diesel and heating oil falling by 371,000 barrels.
Phil Flynn, an analyst at Price Futures Group, remarked, "We're back to worrying about a tight market" - referring to the idea that the gas and distillate draws indicate strong consumer demand.
But crude's steady price declines over the past week coupled with increasing evidence that major producers such as the U.S., Russia, and Saudi Arabia can pump all-out much easier than skeptics thought to compensate for shortages elsewhere in the world suggest that tight market worries may be fleeting.
John Kilduff, founding partner at Again Capital, said, "The pressure is still on from the demand side of the equation here, from refiners, from consumers driving; the storage levels at Cushing [Oklahoma] are starting to get alarming."
BMI Research is of a similar bearish mindset: on Wednesday it stated, "The economic outlook is broadly positive, but a number of headwinds are emerging, not least a stronger dollar, rising inflationary pressures, and tightening liquidity."
It added in reference to the growing trade war between the U.S. and China, "Slowing trade growth will weigh on physical demand for oil."
Of all the factors pointing to a possible return of oil surplus and attendant lower prices is the U.S., whose capacity for enormous sustained output has repeatedly been underestimated by analysts; and of the 11 million bpd amount achieved last week for the first time in the nation's history, Scott Shelton, a broker at ICAP, pointed out that "I don't think production is plateauing at 11: it's fully expected to grow beyond 11 – we won't be topping out there."
The U.S. has added nearly 1 million bpd in production since November, thanks to rapid increases in shale drilling.
Earlier this week, noted trader Daryl Guppy insisted that technical analysis proves that crude is headed for a rebound rather than further price reductions; however, even his calculations showed an upside target for the crude trend continuation at only $76, which is a far cry from the triple digit prices many analysts said is the inevitable fate for crude in our world of geopolitical tension.
