Following last week’s report from the US government that inventories of crude oil are surging, oil prices began to slide, bringing a four-day rally to a close. Analysts predicted far less than the 6.3 million barrel increase in oil supplies. By midday New York trading, US crude slumped 6.5% or $3.43 to a price of $49.60 per barrel.
Over the past four days, traders pushed prices higher based on signs that some of the larger energy companies were planning to cut back exploration. However, when oil prices reached its highest point so far this year, hope that a long-running collapse was imminent was bolstered. Since June of last year when oil per barrel peaked at $107, the price has been dropping significantly.
Following data from the US government that showed supplies increased more than expected and are near 80-year highs, price of oil declined even more. On the New York Mercantile Exchange, for the March delivery of crude oil from the US there was a decline of 6.2% or $3.26 to $49.79 per barrel. Just one day prior, prices stayed higher than $53 per barrel.
On ICE Futures Europe, the global benchmark of Brent dropped 4% or $2.34 to $55.57 per barrel. According to the US Energy Information Administration, for week ended January 30, supplies of US crude oil jumped by 6.3 million barrels up to 413.1 million barrels. Expectations from the Wall Street Journal were a gain of just 3.7 million barrels.
In reviewing EIA weekly data that goes back to August of 1982, stockpiles of crude oil are at their highest point. However, monthly data does not match up with data from the EIA weekly, showing it has been since 1930 that inventories were this high. In the official EIA report, it has been at minimum, 80 years since inventories of US crude oil were at this level.
Typically in February and March, oil refineries shut down in order to conduct seasonal maintenance so as less crude is purchased, analysts anticipate growing inventories over the next several weeks. As stated by Kyle Cooper, analyst with Houston-based IAF Advisors, the report is bearish, which is how the market is viewing it. He added that he is unsure whether the reality of building a lot of crude over the next several months has been factored in.
In addition, while analysts expected a drop in gasoline by 300,000 barrels, surplus climbed this week by 2.3 million barrels. Distillate stocks to include diesel fuel and heating oil also increased, by 1.8 million barrels. The expectation from analysts was a decrease of 2.2 million weekly. Declining last week was demand in the US for petroleum products.
Andy Lipow, president of Lipow Oil Associates stated that as far as gasoline is concerned, there was a direct effect associated with horrible weather in the Northeast, forcing people to stay home rather than spend time driving.