Oil prices rose on Thursday after US EIA data showed falling US fuel inventories and despite investor concerns about a potential oversupplied market in 2019.   Repsol photo.

Oil prices pared on EIA data showing 10.3 million barrel jump in US crude stocks

On Thursday, oil prices rose slightly after significant losses earlier in the week.  Prices were up due to fuel stockpile declines in the United States and despite growing concerns about a possible oversupply of the market in 2019.

By 2:50 p.m., EST, benchmark Brent crude futures were up 47 cents to $66.59/barrel while US West Texas Intermediate futures climbed 22 cents to $56.47/barrel.

Recent comments by Saudi Arabia’s Energy Minister concerning possible output cuts by the cartel helped underpin oil prices that have fallen significantly since the beginning of October.

But Thursday’s gains were pared after data by the US Energy Information Administration showed US crude stocks had jumped by 10.3 million barrels last week.  This is the largest weekly build since February, 2017.  Analysts polled prior to the release of the data had expected an increase of 3.2 million barrels.

Source: Drillinginfo.

The EIA also reported gasoline stocks fell by 1.4 million barrels and distillate inventories were down by 3.6 million barrels, according to Drillinginfo’s weekly petroleum status report.

Gasoline and distillate inventories decreased 1.4 million barrels and 3.6 million barrels, respectively.

Yesterday afternoon, API reported a large crude oil build of 8.8 million barrels, while reporting a gasoline build of 0.18 million barrels and a distillate draw of 3.2 million barrels. Analysts were expecting a smaller crude oil build of 3 million barrels.

The most important number to keep an eye on, total petroleum inventory levels, posted a decrease of 1.4 million barrels, said the Denver-based information firm.

“Product draws are helping to offset some of the bearish brunt of a double-digit build – both gasoline and distillate show a jump in implied demand,” Matt Smith, director of commodity research at ClipperData told Reuters.

OPEC is considering dropping its production by up to 1.4 million barrels per day (b/d) in 2019 to avoid another buildup of global crude supplies.  However, one of the key participants in the cartel’s current oil supply cut agreement, Russia, is not looking to join new production cuts, according to two high-ranking Russian Reuters sources.

“Oil prices shrug the (EIA) data off so far,” Commerzbank commodities analyst Carsten Fritsch told Reuters. “One explanation could be that a substantial production cut by OPEC becomes more likely.”

Warren Patterson, ING commodities strategist told Reuters “(A cut) helps, but based on my balances, I think we’ll need to see 1.5 million b/d at least for the first half of the year”. He added “Words aren’t going to work. The market is going to need to see action as well”.

Earlier in the week, the International Energy Agency and OPEC warned there could be a sizeable oil surplus at least in the first half of 2019, and perhaps beyond.  This is due mainly to growth in non-OPEC production and slowing demand from China and India.

Ed Morse, head of commodities research at Citigroup, told Bloomberg that United States’ policies and rising US production are to blame for the recent drop in oil prices.

“The oversupply in the market is a made-in-America phenomenon,” Morse told Bloomberg. “It’s the unexpected consequences of American policy and the unintended impact of technological changes that made this historically unprecedented arena for production growth blossom.”

The Trump administration’s decision to grant waivers to eight of Iran’s largest oil buying customer along with skyrocketing US output added to oversupply concerns, according to Morse.  And Morse adds that on the demand side, the trade war between the US and China has hurt global economic and oil demand growth prospects

Oil prices are down about one-quarter in the past six weeks due to slowing global demand and rising crude output by the United States.

“Asian refiners and consumers we speak with are mentioning initial concerns of slowing demand,” Mike Corley, president of Mercatus Energy Advisors told Reuters.

And on Wednesday, US bank Morgan Stanley said China’s economic “conditions deteriorated materially” in the third quarter of this year.  Analysts at Capital Economics concurred, saying China’s “near term economic outlook still remains downbeat”.

China is the world’s largest importer of crude and the second-largest oil consumer.