Oil Prices Slip as U.S. Crude Inventories Surge
Oil prices continued lower Wednesday after U.S. government data confirmed a large accumulation of crude stockpiles last week, raising some concern that supplies were outpacing demand.
Crude Prices Slide
U.S. and global energy markets backtracked on Wednesday amid news of rising stockpiles in the world’s largest economy. U.S. West Texas Intermediate (WTI) futures declined $1.08, or 1.9%, to $55.48 a barrel on the New York Mercantile Exchange. Brent, the international futures contract, fell 44 cents, or 0.7%, to $65.42 a barrel on London’s ICE futures exchange.
Since peaking at three-month highs in February, oil prices have dropped around 3%. A stronger dollar has factored into the equation. Since February 26, the U.S. dollar index (DXY) has gained nearly 1%. The greenback was down slightly against its peers Wednesday.
The U.S. Energy Information Administration (EIA) reported Wednesday that commercial crude inventories surged by 7.069 billion barrels for the week ended February 25, well above the median forecast calling for a build of 1.203 million barrels. It also confirmed an earlier industry report from the American Petroleum Institute (API), which showed stockpile accumulation of 7.29 million barrels.
Inventories had declined by 8.647 million barrels during the previous week, according to EIA data.
Rising inventories outweighed optimism that OPEC-led production cuts would lead to a rebalancing of global energy markets following a disastrous fourth quarter for crude prices. The Saudi-led cartel is ramping up efforts to rein in supplies to engineer a higher price point for crude. According to the World Bank, Saudi Arabia needs crude prices to return above $80 a barrel to balance its lofty budget.
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Saudi Arabia’s energy minister announced last month that the kingdom was planning even bigger production cuts beginning in March. Starting this month, Saudi production will fall to around 9.8 million barrels per day, well below levels agreed to in December. It also represents a drop of over half a million barrels per day from production levels in February. Read more: Oil Prices Recover as Saudi Arabia Takes Drastic Measures to Rebalance Market.
OPEC’s new production policy has helped engineer a meaningful recovery in oil prices since the beginning of the year, but analysts say rising U.S. inventories will weigh on the market long-term. Concerns over rising production in the Permian region will also keep a lid on prices in the medium term. For traders, this means potentially choppy trading conditions.
Featured image courtesy of Shutterstock. Chart via Barchart.com.