Massive U.S. Inventory Build Spooks Traders Despite Fleeting Circumstances

Totally ignored were robust gas draws and jet fuel consumption data: File Image/Pixabay

Despite demand resiliency in many corners of the world, oil prices on Wednesday declined by over 1 percent due partly to a U.S. crude inventory build that far exceeded expectations and yet was due to temporary factors.

The Energy Information Administration reported that the inventories rose by 12 million barrels to 439.5 million barrels last week compared to expectations for a 2.6 million barrel rise; the increase was attributed to winter storm outages as well as planned turnarounds, both of which caused refining to decline to its lowest level since the winter of 2022.

Crude traders seemed to shrug off concurrent reports that U.S. gasoline inventories fell by about 3.7 million barrels against expectations for a 1.2 million draw: a sign of demand resiliency, as was distillate stockpiles falling by 1.9 million barrels.

Traders also turned a cold shoulder to the EIA stating that jet fuel consumption on a four-week basis rose to a pre-pandemic seasonal high.

As a result, Brent on Wednesday settled down $1.17, or 1.4 percent, at $81.60 per barrel, while West Texas Intermediate settled down $1.23, or 1.6 percent, at $76.64 per barrel.

Meanwhile, Israel on Wednesday responded to a rocket attack from Hezbollah by launching strikes in southern Lebanon, a move that rekindled old fears that Middle East tensions would spread despite the conflict so far having no effect on the oil market. 

Tamas Varga, analyst at PVM, said, "Currently events around Israel and Gaza, together with Ukraine's war against Russia, weighs more on sentiment than disappointing U.S. inflation data."

Varga was referring to the consumer price index rising higher than expected by 3.1 percent in January, year-over-year, up 0.3 percent from December, causing investor concern that central banks may delay the start of interest rate cuts.