Amid growing bearish sentiment towards oil prices, the Energy Information Administration reported a build of 4.1 million barrels in crude oil inventories for the week to January 6, a day after the American Petroleum Institute had estimated inventories were 1.5 million barrels higher in the period.
Analysts had expected EIA to report a build of 930,000 barrels. Last week, the agency reported a weekly decrease of 7.1 million barrels, injecting some optimism into markets but not for long as doubts about the OPEC production cut deal deepen.
According to EIA, commercial crude oil inventories as of January 6 stood at 483.1 million barrels, within seasonal limits, near the upper end.
Refineries operated at 93.6 percent of capacity, processing 17.1 million barrels of crude and producing 9.7 million barrels of gasoline and 5.3 million barrels of distillate daily.
Gasoline inventories for the period were 5 million barrels higher than in the previous week, after an 8.3-million-barrel build in the last week of 2016.
Crude oil imports in the seven days to January 6 stood at 9.1 million barrels daily, up from a daily import rate of 7.2 million barrels in the week before.
EIA’s figures are unlikely to reverse the slow but steady slide that we’ve been seeing since the start of this week. Among the factors weighing down on international prices, besides the worry about the OPEC deal, are also expectations for higher output from the U.S. shale patch, which would further dampen optimism about an end to the global glut.
Despite reports about OPEC members and non-OPEC producers starting to implement the agreed cuts to their output, doubts about how long this compliance will last remain and grow, especially after it emerged that Iraq, the cartel’s second-largest producer, plans to raise oil exports in February.
At the same time, shale producers are rushing to raise production, using the price rally while it lasts, not least because of their often substantial debt burdens. The way things are going, the rally is unlikely to continue for very long unless a radical new change occurs.
At the time of writing, WTI was trading at US$51.44 a barrel and Brent was changing hands at US$54.37 a barrel.