Crude Prices Fall As U.S. Inventories Rise

After the EIA released their report, crude oil inventories are found to be at surprisingly high levels with a less-than-expected draw.  

The market has responded, seeing crude prices fall once again.

EIA Reports

As the Energy and Information Administration (EIA) released their weekly report for the week ending July 8, U.S. commercial crude oil inventories were revealed to be at an unexpected high of 521.8 million barrels.

According to their status report, a fall of 2.5 million barrels could be seen since the previous week’s report, failing to meet analysts estimates of a draw of up to 3 million.

For the time of year, peak U.S. driving season, the high levels of inventory and a large increase in heating oil comes as a surprise.

The buildup will set the tone for lower prices: bad news for oil stocks and the energy market.

Falling Futures

Reports from the American Petroleum Institute (API) revealed that, despite the expected 3 million draw, their supply actually showed an increase in inventories by 2.2 million.

Following this revelation, oil futures have fallen, with the likes of Brent Crude down by 3% and West Texas Intermediate falling by 2.7%.

Oil futures in electronic trading dropped immediately after the inventory figures from the EIA were confirmed.

The surprise elevation of inventories assumes a lesser demand, working as a dampener on oil prices.

U.S. Crude Imports and Production

Imports of crude oil are shown to be down also, falling by 522,000 barrels-per-day to 7.8 million.

The fall of imports contributed to the fall in crude inventories, although they remain high.

Refinery inputs fell also, averaging at over 16.5 million barrels a day; 143,000 barrels less than that of the previous week.

Refineries were revealed to be operating at 92.3% for the week ending July 8.

Total gasoline imports, both finished gasoline and components, averaged 820,000 barrels per day, whilst distillate fuels imported an average of 57,000 barrels.

On the Rise

According to the EIA reports, gasoline production increased to an average of over 10.2 million barrels per day, seeing inventories increase by 1.2 million, placing them in the upper limit of an average range.

Distillate fuel production, also high for the time of year, rose to an average of over 5.0 million barrels per day, it’s inventories increasing by 4.1 million barrels last week.

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A surprising build

 The buildup of U.S. crude oil inventories suggests a weaker demand for the oil.

The implications of this see a fall in prices: bad news for the energy market and oil stocks.

The International Energy Agency said the rise in stockpiles has led to the highest level in floating storage in up to seven years.

The EIA believes the domestic situation in U.S. crude inventories should improve with time, expecting the market to reach balance next year.

International Affairs

 As the U.S. crude output slumps, the Middle East has climbed to a record.

The excessive rise in stores of U.S. crude inventories has, after a two-month period of stability, been named as a threat to the recent stability of prices by the IEA.

Jumping Prices

Before the release of data from the API, revealing their surprising crude inventory build, oil prices had risen by nearly 5%.

The recent stability of prices is threatened as stock rises.

Unless crude inventories fall, there is the risk that any further increase will threaten the whole price structure.

The Facts

From the EIA report for the week ending July 8 we can see that:

• Inventories are surprisingly high for this time of year
• Crude inventories are at 521.8 million barrels
• API reports a surprise increase of 2.2 million
• Imports are down to an average of 7.8 million barrels per day
• Gasoline and distillate production are on the rise, inventories in upper limit of average range
• Refineries operated at 92.3%
• The surplus stock has already seen a drop in prices
• IEA says highest floating storage in 7 years

After a stable two-month period, the buildup of inventories could send prices on a downward spiral unless the situation improves.

A small decrease in crude stocks for this time of year, however, the somewhat significant rise in distillate stores could be problematic if they continue to increase.

Heating oil will not be largely needed for a few months, the excess of which will surely end in storage.

Better with Time

By 2017, the market is expected to reach a balance as inventories are expected to build up, reaching 0.9 barrels per day by the end of this year. 

Global head of energy analysis stated that he believes, crude oil supply and demand will continually become more balanced.

He agreed, however, that the greatest risk is that, as crude oil becomes more balanced, gasoline loses out in the autumn, if history is to be believed.

Forecasts remain the same as global demand is predicted to increase, and the market is expected to reach balance.