Oil prices were mixed on Wednesday following data showing a significant increase in US crude stocks, however, analysts say the build up was concentrated on the West Coast. “Sometimes the West Coast numbers are erratic and usually when you get a big build in the West Coast, it’s followed with a big draw the next week,” said Phil Flynn at Price Futures Group. BP photo.
Drag on long-term upside potential in oil prices is rising US production
On Wednesday, oil prices were mixed after the US Energy Information Administration reported a significant increase of 6.2 million barrels in US crude stocks last week.
By 1:10 p.m., EDT, benchmark Brent crude slipped 18 cents to $73.95/barrel. On Tuesday, Brent had fallen nearly 3 per cent to its lowest level in two weeks. US WTI was up 6 cents to $67.31/barrel and the Canadian Crude Index dipped 459 cents to $49.58.
According to the US Energy Information Administration, nearly 5 million of the 6.2 million barrel build was concentrated on the US West Coast.
“That’s why the market isn’t reacting that much, because sometimes the West Coast numbers are erratic and usually when you get a big build in the West Coast, it’s followed with a big draw the next week,” Phil Flynn, an analyst at Price Futures Group told Reuters.
“The market is putting that in perspective,” he added. Flynn said distillate demand remained strong which offset the downward pressure on crude prices.
Stephen Brennock, strategist with PVM Oil Associates told Reuters that a major drag on the long-term upside potential of crude prices is rising US shale production.
“Concerns over the US shale engine may have recently been put on the back burner but this reprieve is not expected to last,” said Brennock.
Analysts and investors are waiting to learn the fate of the Iran sanction relief deal which has been threatened by US President Trump. Trump campaigned against the deal while running for president and has said unless Congress and European allies “fix” the agreement by May 12, he will withdraw the United States from the pact.
Should Trump choose to do so, sanctions will be re-imposed which will cut into the global supply of crude. Last month, Iran’s oil exports hit 2.6 million barrels per day (b/d), a record since the sanctions were lifted.
China and India bought over half of Iran’s crude exports.
“The expectation that the U.S. will leave the sanctions waivers is leading Iran to sell as much as it can,” Petromatrix strategist Olivier Jakob told Reuters.
Should Trump abandon the agreement, Ole Hansen, head of strategy at Saxo Bank told Reuters that “he risks a spike in global oil prices” as reintroducing US sanctions on Iran could reduce global crude supplies by 300,000 to 500,000 b/d.
The rising US dollar has also impacted oil prices, making crude more expensive for buyers using other currencies.