Oil prices fell Wednesday after the US Energy Information Administration reported US crude stocks rose by 2.1 million barrels last week.  Analysts had forecast a decline of 1.8 million barrels. Seven Generations Energy photo.

US oil prices down over 1 per cent

Oil prices fell on Wednesday on mounting concerns that the global supply of crude is rising after US government data showed US crude stocks rose last week and Saudi Arabia and Russia signalled they may boost their output.

By 1:45 p.m., EDT, benchmark Brent crude dipped 27 cents to $75.11/barrel.  US West Texas Intermediate was down 1.01 per cent, or 66 cents to $64.86/barrel.  The Canadian Crude Index fell $1.31 to $43.26.

According to data from the US Energy Information Administration, US crude stocks rose by 2.1 million barrels last week.  Analysts polled by Reuters expected crude inventories to fall by 1.8 million barrels.  Data showed fuel inventories also rose.

“Oil prices are being clobbered by a surprise build to crude stocks as total imports jumped higher, blunting the impact of higher refinery runs,” Matthew Smith, director of commodity research at ClipperData told Reuters.

The EIA’s weekly report also showed US crude production hit a record high of 10.8 million barrels per day (b/d).  Rising US production prompted selling even after Brent crude topped $80/barrel last month.

“The continuing increase in crude oil production is weighing on the market, and quite significantly compared to this time last year,” Andrew Lipow, president of Houston-based Lipow Oil Associates told Reuters.

US crude production has increased by 1.5 million b/d over this time last year.  With the growth in production, the discount between US crude and Brent continues to widen.

Rising US production comes at a time when OPEC and Russia are considering easing up on the 2017 supply cut agreement that saw participants cut their total production by 1.8 million b/d.  The pact is credited with cutting the global glut of crude and rebalancing the oil market.

Last month, US President Donald Trump tweeted “Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!”.

Reuters reports that following the April 20 Trump tweet, the US government unofficially asked Saudi Arabia and some other OPEC countries to boost their production.

OPEC and Russia will meet on June 22-23 in Vienna.  Reuters’ sources say pact participants will discuss increasing production by up to 1 million b/d.

“The oil price is being driven by OPEC and views on how much and how quickly ‘OPEC plus’ will raise output,” Energy Aspects analyst Virendra Chauhan told Reuters.

Venezuela’s crude production has fallen in recent years due to an economic crisis, poor management and US sanctions.  According to Reuters’ sources, Venezuela’s state-run oil company, PDVSA, is considering declaring force majeure on some of its exports due to significant declines in production and tanker bottlenecks at the country’s ports.

As well, US sanctions against Tehran are expected to reduce Iranian oil exports.

“It’s a tug of war between the loss of supply from Venezuela and Iran and the potential output increase from OPEC and US shale,” Tony Nunan, risk manager at Mitsubishi Corp told Reuters. “$80 is a temporary ceiling for oil until we hear from OPEC.”