Oil prices fell Wednesday after the EIA’s Weekly Petroleum Status Report showed a larger than expected build in crude inventories (8 million barrels for the week ending Oct. 16). A couple of bright spots in the report showed that Cushing, OK inventories fell slightly week/week and that the U.S. refinery utilization rate rose from 86 percent during the previous week to 86.4 percent. An increase in refinery inputs could signal that refinery maintenance season is close to concluding, which usually precedes an uptick in crude demand, when more capacity comes back online.
Immediately following the release of the report, the front-month contract for WTI fell below $45/bbl, for the first time in almost three weeks. WTI was trading at or around $45/bbl for most of Wednesday and settled at $45.20/bbl on NYMEX. Brent settled at $47.85/bbl on the ICE.
A meeting held Wednesday in Vienna between OPEC and non-OPEC oil producing states, like Russian, Mexico and Colombia, apparently did not reach any agreement around coordinated output cuts, as some analysts had anticipated. With OPEC and non-OPEC countries hitting oil production records in 2015, the OPEC strategy (led by Saudi Arabia) to wage a price war and to gain market share for its crude are still predominant themes. Although there are signs that U.S. production is rolling over from a high of 9.6 million barrels per day in April 2015, output is nevertheless still robust. For the week ending Oct. 16, the EIA reported that U.S. production was at 9 million barrels per day, slightly lower than the 4-week average, but above output levels during the same period in 2014, when the average spot price for WTI was $82.80/bbl (versus an average of $47.30/bbl for the week ending Oct. 16).
With a market focused on a persistent global oversupply of crude oil, plus the lingering threat of additional Iranian supply possibly entering the market in early 2016, uncertainty remains around how and when the global supply/demand imbalance will rectify itself. Although relatively low gasoline prices have spurred demand in OECD countries (primarily via increased transport activity) in 2015, the increased crude demand growth is not expected to continue into 2016. “China demand concerns” were deepened Monday when that country’s government announced that economic growth during the third quarter had fallen below 7 percent, marking the first time since 2009 the market had slowed to that level.
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