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Oil Rises as U.S. Stockpile Jump Takes Back Seat to Fears Over Saudi Attacks

CommoditiesMay 15, 2019 03:18PM ET
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By Barani Krishnan

Investing.com - Looks like OPEC still wins, however U.S. crude inventories climb.

Oil prices jumped on Wednesday, supported by tensions in the Middle East linked to stealth attacks on Saudi oil tankers and pipelines that offset bearish sentiment earlier in the day over an unexpected surge in U.S. crude stockpiles.

West Texas Intermediate futures, the benchmark for U.S. crude, settled up 24 cents, or 0.4%, at $62.02 per barrel, after falling by $1 a barrel earlier.

London Brent futures, the global benchmark for oil, rose by 78 cents, or 1.1%, to $72.02 by 3:05 PM ET (19:06 GMT). It lost as much 82 cents at the session low, falling to $70.42.

The rebound in oil came despite predictions by the Paris-based International Energy Agency in its monthly report on Wednesday that the world will require very little extra oil from OPEC this year as booming U.S. output will offset falling exports from Iran and Venezuela.

The IEA estimated growth in global oil demand to average 1.3 million barrels per day in 2019. In contrast, U.S. production of oil and condensates alone was forecast to rise by an average of 1.7 million bpd this year, it said.

Crude futures have witnessed undue volatility in recent days as negative price drivers like the worsening U.S.-China trade war faced off with the rise in geopolitical tensions in the Arab world, which often tended to lend a premium to oil.

The OPEC cartel, which counts the world's most influential oil producers like Saudi Arabia and UAE as members and others like Russia as allies, has struggled to hold on to this year's oil-price gains after a remarkable rally of more than 30% in the first quarter. Year to date, WTI is up 37% while Brent shows a 34% gain.

On Wednesday, both WTI and Brent were initially down more than 1% after the American Petroleum Institute, in its weekly supply-demand snapshot issued late on Tuesday, said U.S. crude stockpiles surged more than 8 million barrels last week versus a drawdown expected by the market.

The Washington-based Energy Information Administration, or EIA, confirmed a surprise crude inventory rise, although not as large as that cited by the API.

Crude stockpiles , excluding those in the U.S. Strategic Petroleum Reserve, rose by 5.4 million barrels last week, versus expectations for a decline of 800,000 barrels, the EIA said. In the previous week, crude inventories fell by almost 4 million barrels.

The EIA also said that total motor gasoline stockpiles decreased by 1.1 million barrels during the week ended May 10, against forecasts for a drop of nearly 300,000. In the earlier week to May 3, gasoline inventories fell by almost 600,000.

Distillate fuel inventories rose by 84,000 barrels last week versus expectations for a drop of around 1 million barrels. In the previous week, distillate stockpiles slid by almost 160,000 barrels.

"The EIA report was bearish due to the large crude oil inventory build. Both imports and exports of crude oil rose substantially, and refinery utilization rose back above 90%," said John Kilduff, founding partner at New York energy hedge fund Again Capital.

"There was also a large increase in crude oil inventories at the Cushing, Okla., delivery hub, which adds to the bearishness," he said.

Adding strength to the Paris-based IEA's forecasts on U.S. crude, the Washington-based EIA reported strong U.S. export and production figures for oil in Wednesday's weekly report.

Exports rose by 1.03 million bpd to 3.35 million bpd, the EIA said. While production slid by 100,000 bpd this week, it was still near record highs at 12.2 million bpd.

Whatever the case, the inventory numbers reported by the EIA will not help the bullish case OPEC was trying to build for its oil, said Tariq Zahir, partner at Tyche Capital Advisors, another New York-focused oil fund.

"While draws were expected across the whole complex, we saw builds almost across everywhere," Zahir said.

Just on Tuesday, the 14-member OPEC said in its monthly report that it had cut output again in April.

OPEC said it pumped 30.03 million bpd last month, or nearly 550,000 bpd less than in March.

It also forecast that total world oil supply will increase by 2.22 million bpd in 2019 versus demand growth of 1.21 million. The 1 million bpd difference could give the group legitimacy to extend production cuts at its June meeting with Russia and other world oil producers.

Since December last year, the OPEC+ alliance of world oil producers have been shedding about 1.2 million bpd in supply to help oil prices recover by nearly 40% this year after the market had lost about as much in just the fourth quarter of 2018 on oversupply.

Retail gasoline prices were up slightly on Wednesday, according to the American Automobile Association. The national average price of unleaded gasoline was $2.862 a gallon, up from $2.86 a gallon on Tuesday. The average is up 26.3% this year.

Oil Rises as U.S. Stockpile Jump Takes Back Seat to Fears Over Saudi Attacks
 

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Hank Williams
Hank Williams May 15, 2019 4:36PM ET
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The market was looking weak technically and they appeared to be supported by fundimentals. They ruined a lot of my technicals today.
Barani Krishnan
Barani Krishnan May 15, 2019 4:36PM ET
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Sorry to hear, Hank. It appears that the machines aren't giving the small guys a break.
Barani Krishnan
Barani Krishnan May 15, 2019 4:02PM ET
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Here's a great takeaway line for all bears here: Whatever the case, the inventory numbers reported by the EIA will not help the bullish case OPEC was trying to build for its oil, said Tariq Zahir, partner at Tyche Capital Advisors, another New York-focused oil fund.
Hank Williams
Hank Williams May 15, 2019 2:58PM ET
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Now that the floor trade got it up, let's see what happens over night in the middle east. Because it can't stay where it is without hype. The supply and demand don't work.
Barani Krishnan
Barani Krishnan May 15, 2019 2:58PM ET
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In a perfect world, Hank, the flat price would be a dollar down today (period)
Hank Williams
Hank Williams May 15, 2019 2:07PM ET
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So I guess when I read U.S. will soon be the. #1 producer, that does not affect any POTENTIAL disruptions in supplies.
vinu patel
vinu patel May 15, 2019 1:38PM ET
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Very interesting, Thanks.
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Barani Krishnan
Barani Krishnan May 15, 2019 1:38PM ET
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Singh Raju For both. I agree the market should be down today based on the stockpile build. But OPEC, as always, has very different ideas.
Singh Raju
Singh Raju May 15, 2019 1:38PM ET
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Barani Krishnan but as far as I have understood based on your articles its demand supply game played by Hudge funds. & Trump.. . . Soon before Iran sanctions ended Trump played his cards by diverting minds to trade war. must say thesefolks are very cunning. master manipulation going on. Crude will fall again by friday all hedge fund strategy.
Singh Raju
Singh Raju May 15, 2019 1:38PM ET
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Barani Krishnan also one more thing US crude is light which is of less demand but brent crude from Saudi & Iran are heavy which are more in demand but market is not paying attention to this.
Barani Krishnan
Barani Krishnan May 15, 2019 1:38PM ET
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Singh Raju Yes, indeed. You're definitely following what I'm writing, thank you for that :) But it's the timing that isn't working for the folk here. I guess that's what's hurting them.
Barani Krishnan
Barani Krishnan May 15, 2019 1:38PM ET
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Singh Raju Another excellent point which gets lost in all the "noise" of the market. Yet, there is a reason why the US crude number is important to the overall mix too. And that is because the squeeze in the US is for the heavies that are needed for trucks, rail etc, over in Asia, they just need a lot more of the Arab Light equivalent, which WTI is a great alternative for. So when US crude output jumps, it not only adds to total availability of oil, it also competes with the OPEC stuff. The greater the competition, the more the alternative for buyers, the greater the downward pressure on prices.
Hank Williams
Hank Williams May 15, 2019 1:38PM ET
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Especially on sensationalism.
Barani Krishnan
Barani Krishnan May 15, 2019 1:38PM ET
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The sensationalism isn't mine, sir. It's OPEC's.
Hank Williams
Hank Williams May 15, 2019 1:37PM ET
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Global economies can't handle commodity prices up over 40% from the lows.
vinu patel
vinu patel May 15, 2019 1:37PM ET
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Is it your prediction or have you any solid research on that particular number 40%?
Barani Krishnan
Barani Krishnan May 15, 2019 1:37PM ET
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Hank, you have a very sensible view of the market and what it can handle. Thank you.
Thomas Erichsen
Thomas Erichsen May 15, 2019 1:37PM ET
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Oil will went down this week.
Barani Krishnan
Barani Krishnan May 15, 2019 1:37PM ET
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Unless more things ****up in the Mideast ... probably.
 
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