Oil prices fell on Wednesday due to rising US crude stocks and a surprising increase in distillates inventories.  Repsol photo.

US oil prices down over 3 per cent Wednesday

Oil prices dropped to a one-month low Wednesday after data from the US Energy Information Administration showed an unexpected increase stocks of refined products heading into the slow demand season.

By 1:52 p.m. EST, Brent crude was down $1.54 to $65.32/barrel.  US WTI dropped by 3.09 per cent or $1.96 to $61.43/barrel, its lowest level since Jan. 8.  The Canadian Crude Index fell $32.30.

Data from the EIA showed crude inventories rose by 1.9 million barrels last week, significantly lower than analysts’ expectations of an increase of 3.2 million barrels.  There was a surprising increase in distillates, including diesel and jet fuel as well as gasoline.

According to Reuters, the rebound in refining runs is mostly due to higher production in the US Gulf and Midwest, helping restrain crude stocks but boosting inventories of finished products more than expected.

“The report was squarely bearish with the across-the-board inventory rise. The ability of crude oil inventories to rise in the face of a snap back higher in refinery utilization was particularly bearish,” John Kilduff, partner at energy hedge fund Again Capital LLC told Reuters.

Oil prices rose slightly during the session after Ineos, operator of the UK’s Forties pipeline, reported the line was shut down after a feed control valve shut.  The company says it hopes it can restart the line overnight.

The Forties pipeline transports 450,000 barrels of oil per day and a shutdown on such a large pipeline can impact crude prices.

EIA data shows US crude production rose to 10.25 million barrels per day (b/d) last week, which could be a record if matched by monthly levels.  The EIA forecasts US output will reach an average of 10.59 million b/d in 2018 and 11.18 million b/d by 2019.

Rising US production will drive US exports and cut into OPEC’s efforts to reduce supply and could make the United States the largest producer of oil, overtaking Russia.