Oil prices fall as US reveals higher inventories and intent to sell from reserves

Analysts had been expecting a drop in inventories. Instead, they got a rise.

The US Strategic Petroleum Reserve is mandated to hold 90 days’ worth of crude in case of emergency, but its supplies are up to 140 days’ worth. Its parents organisation has received approval to sell off some of the excess. Richard Carson / Reuters
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Oil prices were knocked back sharply late on Wednesday after the US reported a surprising rise in crude oil inventories and announced a plan to sell oil from its strategic reserve, starting next month.

World benchmark North Sea Brent crude futures, which were trading at near US$55.80 a barrel before the US Energy Information Agency (EIA) report, dropped to $54.40 a barrel after news that inventories rose for the first time in five weeks and stood near their peak level for this time of year.

Commercial crude stockpiles rose by about 2.3 million barrels to 485 million barrels last week. Analysts polled by various news outlets had been predicting a fall by about the same amount. The surprising rise in inventories seemed to be mostly because of unexpectedly high imports into refineries on the US west coast.

The EIA reported that US crude oil imports averaged about 8.5 million barrels per day (bpd) last week, up more than 1.1 million bpd from the previous week. Imports over the last four weeks averaged more than 7.9 million bpd, which was 0.9 per cent above the same period last year.

The higher US imports have come to replace falling domestic production, which last week was just below 8.8 million bpd, the EIA reported. Production is down from about 9.2 million bpd this time last year and from a peak in summer last year of about 9.6 million bpd, but it has been rising over the past few months from a low of about 8.4 million bpd in summer this year as oil prices stabilised between $40 and $50 a barrel.

The US data shouldn’t be too worrying because as the weekly numbers can be volatile and give misleading signals, cautioned Amrita Sen of Energy Aspects. “West coast imports can be volatile, so I wouldn’t read too much into one week’s data,” she said.

“We definitely believe production bottomed out around September but we don’t believe it went down as far as the weekly stats suggested. So, the rebound hasn’t been as steep.”

Also, a report this week from the EIA showed how US production from hydraulic fracturing, or fracking, had risen sharply to account for more than half the US output, while that from traditional oilfields had declined sharply over the past decade. That’s important, as the reserves from fracking sources get depleted much faster.

The EIA has been given government approval to raise up to $2 billion through SPR oil sales through 2020, with the first tranche of 25 million barrels expected to begin next year and run through 2019.

The EIA won’t sell at below $50 a barrel under the terms of its mandate and shouldn’t weigh on markets as the average amount over the period would be very small.

Meanwhile, Brent futures declined further during the day and were down 29 cents from the previous day’s close at $52.20 a barrel.

amcauley@thenational.ae

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