Unexpected US Stockpile Build Pares Tuesday's Gains - But All Is Still Well, Insist Analysts

U.S. crude to hit a four month high on Tuesday

In a spectacular reversal of expectations of a major U.S. inventory drawdown that on Tuesday caused U.S. crude to hit a four month high, the Energy Information Administration (EIA) on Wednesday reported a weekly rise in stockpiles - and gains have been paired accordingly.

West Texas Intermediate settled 12 cents higher at $51.15 after settling up 79 cents at $51.01 just 24 hours prior; Brent rose 22 cents to $54.39 per barrel compared to its 95 cent gain on Tuesday.

Wednesday's market began on a high note following the American Petroleum Institute reporting that inventories fell by a more-than-expected 1.8 million barrels last week; however, the EIA subsequently reported a weekly rise in crude inventories of 1.6 million barrels.

The effect, as summarized by Matt Smith, director of commodity research at ClipperData, was that  "Yesterday's API report gave the market a bullish head-fake via three chunky draws, hence a build to crude stocks and minor draws to the products is causing a tempering of bullish optimism."

To which David Thompson, executive vice-president at Powerhouse, added, "The crude build caught the market leaning the wrong way; crude exports dropped to 575,000 barrels per day (bpd) this week, versus over 1 million bpd last week."

The discrepancy between what the API and the EIA reported has not been explained.

But Standard Chartered assured worried clients in a note that "Overall we think the data is fairly neutral," pointing to total crude and product inventories falling 2 million barrels relative to their five-year average (albeit significantly less than the previous week's 8.3 million barrel draw).

JBC Energy analysts also struck an upbeat tone by telling Reuters that inventories will still decline, even if the Organization of the Petroleum Exporting Countries (OPEC) decides not to extend its output reduction initiative to the end of this year: "The world would still continue to draw stocks at a mild pace of about 200,000 bpd until September, thereby lending support to prices one way or another."

But it's anyone's guess what impact such assurances will have on traders in the days ahead, considering that the earlier expected drawdowns - along with yet more news of stellar compliance by OPEC members participating in the cutbacks - prompted analysts to predict substantial rises in crude prices.

For example, David Pursell, a managing director at Tudor Pickering Holt & Co., told Bloomberg he sees crude reaching $65 per barrel in the fourth quarter of this year and $75 in 2019.