Oil prices steadied on Wednesday after Tuesday’s gains of 3 per cent, however EIA data shows growing US refined product stockpiles and growing US production, which could undermine efforts to rein in a growing crude oversupply. Nexen photo.
Oil prices weighed down by growing US production
On Wednesday, oil prices steadied after a 3 per cent jump on Tuesday on data from the US Energy Information Administration showed an increase in US refined product inventories and rising crude production.
By 2:41 p.m., EST, benchmark Brent crude futures were up 63 cents to $61.27 per barrel and US West Texas Intermediate futures climbed 17 cents to $52.28/barrel.
According to the EIA, US crude stockpiles fell by more than expected, but fuel inventories were bigger-than-anticipated, pressuring oil prices.
Gasoline inventories were up 7.5 million barrels, 2.8 million barrels more than forecast by analysts participating in Reuters poll prior to the data release. Gasoline stockpiles now sit at their highest level since February 2017.
Meanwhile, distillate stocks, including diesel and heating oil, were up 3 million barrels. Analysts had predicted a 1.6 million barrel rise. Crude oil inventories fell by 2.7 million barrels, more than double the forecasts.
“The continued strong rise in oil product stocks is bearish and overshadows the draw in crude oil stocks,” Carsten Fritsch, senior commodities analyst at Commerzbank told Reuters.
The EIA also reported that US crude production rose to 11.9 million barrels per day last week, breaking previous records. US crude exports also jumped to 3 million b/d, nearing record highs.
This growing US production and exports has weighed down oil prices and output is expected to grow to over 12 million b/d this year. The EIA forecasts that the United States will become a net crude exporter in 2020.
Climbing US output could impact oil markets despite OPEC’s efforts to rein in production. The cartel along with other producers, including Russia, are cutting their total production by 1.2 million b/d in an effort to buoy oil prices.
At the same time, there are more signs that a global recession is looming, which will also impact oil prices. The US government shutdown is taking a larger-than-expected bite out of the economy of the United States.
More gloomy economic signs include Teresa May’s loss in British parliament over her deal to leave the European Union and China poor trading data report. Imports and exports both fell from numbers posted one year ago.
According to Reuters, to combat the dark mood, China’s central bank made its biggest daily net cash injection via reverse repo operation on record on Wednesday.
“(China’s) rapidly expanding economy and … thirst for oil has in recent years provided a major pillar of price support,” Stephen Brennock, analyst at London brokerage PVM Oil, told Reuters.
“This unprecedented slowdown will weigh on the global oil market and do no favours for those hoping for a sustained recovery in prices.”