Huge U.S. Inventory Build Causes Oil Price Dip, But Upside Potential Looming

Meanwhile, Mexico's new refinery aims to reduce U.S. fuel dependence: File image/Pixabay

The highest build of U.S. gasoline stocks in over 30 years combined with a large crude stock draw in that country caused a roller coaster session of oil trading on Thursday, with two key benchmarks ultimately incurring minor losses.

After the Energy Information Administration disclosed that in addition to gasoline stocks rising by 10.9 million barrels to 237 million barrels last week, West Texas Intermediate settled down 51 cents to $72.19 per barrel.

Brent settled down 66 cents to $77.59.

The EIA also reported that distillate stocks rose by 10.1 million barrels to 125.9 million barrels; and analysts pointed out that U.S. crude inventories declining by 5.5 million barrels was merely the result of shipping disruptions in the Red Sea.

Dennis Kissler, senior vice president at BOK Financial, said the inventory buildups were "taking precedence and bringing to light that fuel demand is once again stalling."

Kissler added that Middle East tensions, which on Thursday were eclipsed by the inventory news, pose the potential for a greater upside instead of a downside risk.

Other news that contributed to traders' bearish sentiment on Thursday included reports that Euro zone business activity shrank last month, while inflation rose in Germany - the implication being that interest rates might be held steady in that country for the time being.

Also on Thursday, Mexico's Pemexrevealed that its newest Olmeca refinery with a 340,000 barrel per day (bpd) capacity will process 243,000 bpd this year and reach full capacity in 2025; the facility is widely regarded as contributing to Mexico's goal to reduce its dependence on imports from the U.S.

Meanwhile, in Uzbekistan, the price of that country's AI-80 automobile gasoline reportedly increased significantly in the New Year after a temporary suspension of excises on the fuel was allowed to expire.

The implications of the government reinstating the tax apart from making travel more expensive for citizens is increased air pollution in areas such as Tashkent, since AI-80 is a lower-grade fuel.