Americas News
Traders Shrug off Crude Inventory Build Amid Consensus that Demand is "Robust"
Once again, the opinions of crude experts were proven on Wednesday to be spectacularly wrong: despite a Reuters poll estimating that crude stocks in the U.S. fell 400,000 barrels last week, commercial crude inventories in fact surged by 7.2 million barrels in the week through March 29 - and this caused a slight dip in oil prices.
The disclosure by the Energy Information Administration resulted in a 12 cent decline in West Texas Intermediate, to $62.46 per barrel; Brent fell only 6 cents to $69.31.
If traders appeared to be taking the stockpile surge in stride, it's anyone's guess what their reaction will be to preliminary weekly data from the EIA showing U.S. production rising to 12.2 million barrels per day (bpd), which would be a record if confirmed.
Still, oil's trading resiliency reflects to a degree the fundamental health of the commodity, and Michele Della Vigna, head of EMEA natural resources research at Goldman Sachs, told CNBC television that "everybody came into the year with a very negative view, and actually demand has been resilient.
"We hear a lot of stories about long term substitution of oil demand by electricity: some of it will be fair, a lot of it will come through, but it's going to take a long time, and in the meantime demand remains robust, especially in the emerging markets which continue to buy a lot of crude."
Della Vigna went on to note that current crude prices are good for everyone and will ensure that U.S. shale continues to grow.
Michael Cohen, head of energy markets research at Barclays, believes crude will rise slightly higher to an average of $73 per barrel this quarter: "U.S. Midwestern floods, unplanned outages, transit disruptions, and OPEC cuts have all snarled the supply side of the oil market, supporting prices," he wrote in a research note.
And as Andrew Lipow, president of Lipow Oil Associates, reminded followers, any price fluctuations will always frustrate certain factions and please others, regardless of dramatic media headlines: "Crude oil prices are rising and in turn gasoline prices will follow as the U.S. tightens sanctions on both Iran and Venezuela, taking supplies off the market - at the same time that OPEC and non-OPEC producers are more than happy to see prices rise to $70 Brent and higher."
As for geopolitical developments affecting crude, analysts weren't shy about predicting what U.S. president Donald Trump will do next, and the team at Eurasia Group speculated in a research note that "The U.S. will probably fail to reduce Iranian exports to zero, despite renewed talk from the White House about letting all oil import waivers expire in early May" - and that this will ironically help fulfill his goal of keeping gasoline prices palatable for motorists.
