As crude oil begins to slide back down on talk about a possible easing of the OPEC+ production cuts, the Energy Information Administration added to bearish sentiment by reporting a hefty build in crude oil inventories of 5.8 million barrels for the week ending May 18.
The EIA report comes a day after the API’s estimate that inventories had fallen by 1.3 million barrels last week, which might have been positive for prices if the lobby group had not also reported a gasoline inventory build of 4.85 million barrels.
The EIA estimated gasoline inventories had gone up by 1.9 million barrels, with average daily production at over 10 million barrels. In distillates, the authority reported a 1-million-barrel draw in inventories for last week, with production at 4.9 million barrels daily.
Last week, the EIA reported draws in both crude oil and gasoline inventories, but oil production in the United States continued to grow, hitting 10.72 million bpd. This week the production figure will most likely also be higher, reining in any positive price moves prompted by geopolitical factors, notably any further U.S. response to Nicolas Maduro’s victory at the Sunday presidential elections in Venezuela. Related: Can Angola Overcome Its Oil Production Decline?
Meanwhile, oil prices began sliding down from four-year highs that were hit last week on indications that OPEC is considering an easing of its self-imposed production limits in response to the shrinking global overhang as well as a severe decline in Venezuela oil production and the possibility of a drop in Iranian oil exports resulting from the return of U.S. sanctions against the country.
At the time of writing, Brent crude was trading at US$79.12 a barrel, with West Texas Intermediate at US$71.97 a barrel. Most analysts seem to agree that geopolitical tensions in the Middle East and the situation in Venezuela will continue to support prices at least until OPEC’s next meeting with Russia, due in a month, when an announcement of quota easing might pressure them further, especially if U.S. production continues to grow at the current steady rate. On the other hand, the market has four weeks to come to grips with the idea of easing, so the negative effect might be limited and short-lived.
By Irina Slav for Oilprice.com
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The global oil market has discounted long time ago any claims by both the EIA and the API of increases in US oil output or rises in US crude and gasoline inventories.
Such announcements by the either the EIA or API have become like the “good guy bad guy act”. The minute oil prices surge, announcements of increases of US oil production or rises in US crude and gasoline inventories follow on cue.
Last week the EIA reported a draw of 1.4 million barrels for the week to May 11. I said then in one of my comments on this very page that if we wait for 2-3 days, we will get another report either from the EIA or API of a few million barrels build in both US crude and gasoline inventories. And sure enough we got that report today saying gasoline inventories have gone up by 4.85 mbd.
Reporting by API and the EIA has become so farcical with a blatant intension to manipulate oil prices. But the global oil market has already seen through their ploys so that it will not take oil prices long before they resume their surge upwards.
The OPEC/non-OPEC production cut agreement has done a sterling job in eliminating the huge glut in the global oil market. Still, the agreement is here to stay well into the future and it will be transformed into a permanent mechanism which can react quickly to any extreme tightening in the global or market or any significant build in global crude oil and gasoline inventories.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London