Oil Loses Steam As "Surprise" Inventory Build Puzzles Analysts

But the consensus continues to be tight supplies and high demand moving forward: File Image/Pixabay

As predicted in the previous session, oil prices on Wednesday dipped due to the American Petroleum Institute reporting a 1.17 million barrel build in U.S. crude inventories, compared to the previous week's 5.52 million barrel draw.

Gasoline inventories also rose by 4.21 million barrels, compared to a 5.09 million barrel draw the week prior, and this caused Brent to settle down 18 cents at $91.88 per barrel, while West Texas Intermediate settled down 32 cents to $88.52.

Although both commodities have been regarded by many as skirting oversold territory, some analysts shrugged off Thursday's losses: Andrew Lipow, president of Lipow Oil Associates, said, "The big picture is the extended voluntary production cuts by Saudi Arabia and Russia" – a reference to both countries recently agreeing to extend crude  cuts of 1.3 million barrels per day (bpd) to the year end.

Bank of America analysts shared that opinion, noting that the supply cuts could lift Brent above the $100 threshold before the end of the year; regardless, the cuts will amount to a substantial market deficit through the fourth quarter, the International Energy Agency stated on Wednesday.

The IEA also projected that demand will eclipse supply by 1.2 million bpd on average during the second half.

Toril Bosoni, head of the IEA's oil industry and markets division, told media, "The market is really tightening in the second half of the year: we're at risk of seeing continued tightness in the market, especially for distillates, coming into the winter months."

In other oil-related news on Wednesday, the U.S. Department of Labor reported that the consumer price index (CPI) for August rose 3.7 percent year-over-year, with the increase largely due to a huge hike in gasoline prices - while CPI data overall showed a decrease in inflation.

Brian Jacobsen, chief economist at Annex Wealth Management, remarked, "The move higher in headline inflation is a head-fake since it was mostly driven by a huge 10.5 percent jump in energy commodity prices." 

Eric Winograd, chief economist and strategist at AllianceBernstein, added, "It's pretty clear that inflation has been coming down, both on a headline and core basis, but getting to the Fed's long-term goal is going to take time."