U.S. crude inventories rise unexpectedly as exports drop

Roman Schwartz
August 4, 2018

Inventories at the delivery point for USA crude futures have plunged after an outage at Syncrude's oil sands facility in northern Alberta, Canada, in June dented flows to the hub. RIG-OL-USA-BHI Hedge funds trimmed their bullish wagers on us crude for the second week in a row to the lowest in almost a month, data also showed on Friday, as oil prices remained volatile amid trade tensions and geopolitical risks.

Oil slipped below $74 a barrel on Wednesday morning after the American Petroleum Institute (API) reported a crude oil inventory build of 5.59 million barrels last week, compared to analyst expectations for a 2.8 million-barrel drawdown.

Signs that the supply of oil through the Bab al-Mandeb Strait in the Red Sea may resume also affected prices.

A Reuters poll showed that oil prices are likely to hold fairly steady this year and next as increased output from OPEC and the United States meets growing demand led by Asia and helps to offset supply disruptions. The first two days of this week were illustrative: Monday saw a gain of more than 1% in the price of West Texas Intermediate (WTI); Tuesday saw a drop of the same size.

The initial deal, under which OPEC and non-OPEC producers are cutting supply by about 1.8 million barrels per day, had expired in March 2018. "While we have some bearish factors, including rising United States oil production, a trade war between the U.S. and China isn't drastically escalating, and that sense of relief is supporting prices".

Alhajji said, "Unlike the past, US weekly crude oil inventories have become extremely sensitive to U.S.net imports, making short term oil prices more volatile".

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So far this year, WTI Crude prices have averaged $66.16 per barrel, and were down 0.47 percent at $69.80 at 07:58 a.m. EDT on Tuesday.

Oil prices have rebounded from recent lows over the last two weeks, as looming sanctions on Iran have already started to curtail exports from that country.

On June 22-23, OPEC, Russia and other non-members agreed to return to 100 per cent compliance with oil output cuts that began in January 2017, after months of underproduction in Venezuela and elsewhere pushed adherence above 160 per cent. Last week, Saudi Arabia suspended oil shipments through the strait after the Houthi group attacked Saudi oil tankers.

On Monday, a Reuters survey found that OPEC production reached a 2018 high in July.

"A trade war will slow down economic growth and demand for oil but also eventually spill over into other asset classes, mostly equities, that can have an impact on oil prices through a negative market sentiment", Jette Jørgensen of Global Risk Management Ltd said.

While technology stocks continued to suffer, overall Wall Street pushed higher following a Bloomberg News report that senior U.S. and Chinese officials are seeking to restart negotiations to end an escalating trade war.

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