Crude Price Gives Up Gains After Large Stockpile Build

The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning, showing that U.S. commercial crude inventories jumped by 7.9 million barrels last week, maintaining a total U.S. commercial crude inventory of 446.8 million barrels. The commercial crude inventory is about 3% above the five-year average for this time of year.

Tuesday evening, the American Petroleum Institute (API) reported that crude inventories increased by 4.26 barrels in the week ending October 31. For the same period, analysts expected crude inventories to rise by about 1.5 million barrels. Gasoline and diesel fuel inventories fell, by 4.0 million and 1.6 million barrels, respectively, according to the API. The EIA reported that gasoline inventories dropped by 2.8 million barrels last week and distillate inventories dropped by 600,000 barrels.

Benchmark West Texas Intermediate crude traded at around $57.00 Wednesday morning, while May 2020 futures traded around $56.00. In May of this year, the difference between the current spot price and the six-month forward price was about $3.00 a barrel higher. That market position, known as backwardation, has slowly been giving way to the more usual position where future prices are higher than current spot prices (called contango). This week’s reversal is not particularly good news for the oil markets.

Last week’s inventory marks the seventh increase in U.S. commercial crude inventories in the past eight weeks. Last week, hedge funds were once more buying futures contracts, betting that shorts would be forced to cover their bets as crude prices increased, thus pushing the price of crude even higher. Check back next week to see how that turned out.

U.S. production last week totaled 12.6 million barrels a day and net crude exports fell by 956,000 barrels a day to 2.37 million. U.S. crude exports have averaged 2.91 million barrels a day for the year to date, an increase of just over 54% year over year.

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