Crude Oil Price Tumbles on Unexpectedly Large Inventory Builds

The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning, showing that U.S. commercial crude inventories increased by 2.1 million barrels last week, maintaining a total U.S. commercial crude inventory of 436.6 million barrels. The commercial crude inventory remains in the lower half of the average range for this time of year.

Tuesday evening the American Petroleum Institute (API) reported that crude inventories fell by 2 million barrels in the week ending June 1. Gasoline inventories increased by nearly 3.8 million barrels and distillate stockpiles decreased by about 870,000 barrels. For the same period, analysts expected crude inventories to decrease by about 1.8 million barrels. Gasoline inventories were seen up by 587,000 barrels and distillate inventories were expected to rise by 784,000 barrels.

Total gasoline inventories increased by 4.6 million barrels last week, according to the EIA, and remain in the upper half of the five-year average range. U.S. refineries produced about 9.7 million barrels of gasoline a day last week, down by about 700,000 barrels compared to the prior week. Total motor gasoline supplied (the agency’s proxy for demand) averaged about 9.5 million barrels a day for the past four weeks, down by about 1.1% compared with the same period a year ago.

Before the EIA report, benchmark West Texas Intermediate (WTI) crude for July delivery traded down about 0.4% at around $65.43 a barrel and fell to around $64.79 (down about 1.1%) shortly after the report’s release. WTI settled at $65.52 on Tuesday and opened at $65.46 Wednesday morning. The 52-week range on July futures is $45.18 to $72.90.

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Since last Thursday, oil prices have dropped about $3 a barrel, largely due to reports that Saudi Arabia and Russia will increase production to help offset barrels lost from Venezuela and revenue lost to rising production in the United States. Recent reports claim that the Trump administration has requested the Saudis boost production by a million barrels a day.

That’s not really news. A month ago Treasury Secretary Steven Mnuchin said that there had been “various conversations with various parties about different parties that would be willing to increase oil supply” to offset potential losses flowing from new U.S.-imposed sanctions on Iran. Mnuchin’s barely comprehensible statement was intended to cover the administration in the event that OPEC and its partners decline to raise production. Now that the president has essentially declared that the United States has two friends in the Middle East — Israel and Saudi Arabia — it would be a huge loss of influence for the Saudis to play the tit-for-tat game Mnuchin tried to avoid talking about.

U.S. crude oil exports fell by 465,000 barrels a day last week, and U.S. production rose by 31,000 barrels a day to 10.8 million. Exports averaged 1.71 million barrels a day last week and have a cumulative daily average for the year of 1.71 million barrels a day, a 121% increase over the year-ago export total.

Distillate inventories increased by 2.2 million barrels last week and remain in the lower half of the average range for this time of year. Distillate product supplied averaged over 3.9 million barrels a day for the past four weeks, down by 2.6% compared with the same period last year. Distillate production averaged over 5.3 million barrels a day last week, roughly flat compared to the prior week’s production.

For the past week, crude imports averaged over 8.3 million barrels a day, up by 715,000 compared with the previous week. Refineries were running at 95.4% of capacity, with daily input averaging about 17.4 million barrels a day, about 214,000 more than the previous week’s average. Exports of refined products rose by 674,000 barrels a day last week to 5.32 million.

According to AAA, the current national average pump price per gallon of regular gasoline is $2.941, down more than five cents from $2.963 a week ago and up almost 13 cents per gallon compared with the month-ago price. Last year at this time, a gallon of regular gasoline cost $2.369 on average in the United States.

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Here is a look at how share prices for two blue-chip stocks and two exchange traded funds reacted to this latest report.

Exxon Mobil Corp. (NYSE: XOM) traded up about 0.5%, at $81.09 in a 52-week range of $72.16 to $89.30. Over the past 12 months, Exxon stock has traded down about 0.2%.

Chevron Corp. (NYSE: CVX) traded up less than 0.1%, at $122.79 in a 52-week range of $102.55 to $133.88. As of last night’s close, Chevron shares are trading up about 17.7% over the past year.

The United States Oil ETF (NYSEARCA: USO) traded down about 1.3% to $13.06, in a 52-week range of $8.65 to $14.74.

The VanEck Vectors Oil Services ETF (NYSEAMERICAN: OIH) traded down about 0.2%, at $26.79 in a 52-week range of $21.70 to $29.87.

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