The US oil glut fell last week, but oil prices fell too on Wednesday. What went wrong?
There is no getting away from it that the fall in the latest Energy Information Administration figures was unexpected.
US crude inventories fell by 553,000 barrels to 468.2mln barrels in the week to October 21, according to data released by the US official energy data provider. The data was the very opposite of analysts’ expectations for an increase of 1.17mln barrels.
The data also marked the seventh time out of the past eight weeks that stockpiles have dropped, according to the EIA data.
But all was not well. Yes the US oil benchmark future, the West Texas Intermediate did spike up to over $50 a barrel on the news. But that really was all it was, a spike, that lasted all of 30 minutes before sending the WTI down again. It was last seen down 1.6% at $49.14.
The EIA figures, being official numbers, are certainly widely respected. But they also sit out of synch with what other keenly-watched sources are saying.
The EIA numbers run counter to Tuesday’s release from the American Petroleum Institute, which estimated a 4.8-mln-barrel inventory increase.
Total crude inventories, according to EIA, stood at 468.2mln barrels, below the maximum for this time of year, but still near the upper limit.
Gasoline inventories – also watched closely by traders – went down by 2mln barrels last week.
But it is not only that the oil output was close to the upper limit. Nor that it in any way contradicts the vibes from the API.
Everyone knows that the US data is highly influential, but hardly the end of the story.
The oil cartel OPEC is the kingpin in where oil prices will ultimately go. Everything else is rather a tease.
There has been some optimism, and cynicism, over a pledge made last month by OPEC members at their Algiers informal meeting that supply will be cut. The Saudi Arabians are the biggest single OPEC member, and there is little reason to doubt their sincerity in cutting output, having failed to put the US shale industry out to dry this year. Read more.
OPEC said it hopes to enumerate the scale of the supply cuts in November.
However, since then, the outlook on a freeze agreement or cut has grown increasingly uncertain and this latest report is unlikely to remove all volatility.
A series of meetings between the Russian and Saudi oil ministers, along with visits by Venezuela’s president and energy minister to Iran and Russia, have resulted in nothing specific, to say the least.
Instead a lot of contradictory chatter has come from the direction of the cartel, with Russia’s Alexander Novak reiterating the country’s general readiness to join a freeze if all OPEC agrees, Iran’s Supreme Leader vowing to not let the cartel interfere with the country’s production raise plans, and Saudi Arabia’s push for a final agreement.
So in this environment of major volatility, any information containing specific figures about demand and supply is bound to have some market-swinging effect. But without a fundamental lead on supply that cannot last.
Story by ProactiveInvestors