Crude Falls; US Production Rises Week over Week

The front-month contract for WTI touched a low of $47.17/bbl Wednesday off of news from the U.S. Energy Information Agency (EIA) that crude inventories rose for the sixth straight week, with a build of 2.8 million barrels for the week ending Oct. 30 (versus expectations of a 2.5 million barrel increase). The rise in crude stocks coincided with the American Petroleum Institute’s (API) weekly estimate, which is issued on Tuesdays after market close. In after-market trading Tuesday, oil prices, along with gasoline and diesel, spiked off of reports of disruptions along the Colonial Pipeline, the country’s largest product pipeline that runs between Houston, TX and Linden, NJ. Oil was also supported by news of supply disruptions in Brazil and Libya. Those price gains overnight were erased in Wednesday’s trading - December’s WTI contract settled on the NYMEX at $46.32/bbl (down 3.3 percent) and Brent’s front-month, on the ICE, fell 3.9 percent to $48.58/bbl.

The EIA data showed greater than expected declines to both gasoline and distillate inventories week over week, down 3.3 million barrels and 1.3 million barrels, respectively. Traders looked past these headlines, however, and homed in on the data points that demand for refined products fell for the week (down 827,000 barrels per day); and that the reason for the drop in product inventories was largely due to lower import levels. Although the overall refinery utilization rate increased week over week from 87.6 percent to 88.7 percent, it is not enough of a boost to indicate that refineries are completely out of the seasonal maintenance period, when demand for crude traditionally picks up. The overriding factor affecting market sentiment is that crude inventories remain at 80-year highs, and there are few potential positive catalysts for oil in the short-term. Another discouraging sign for oil was the EIA reporting an increase of 48,000 barrels per day in U.S. output for the week ending Oct. 30.

In addition, U.S. Federal Reserve Chairwoman Janet Yellen made hawkish comments Wednesday for a potential short-term interest rate hike in December of this year. As a result, the dollar strengthened versus other global currencies, which weighs on the price of oil.


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