WTI crude oil futures losses extended following surge in crude inventories

As a reflex action, the West Texas Intermediate oil extended its losses on Wednesday in the North American trade, following data that showed crude oil supplies in the U.S. registered a much larger-than-expected inventory build.

The crude oil for March delivery on the New York Mercantile Exchange dropped 56 cents, or 1.07%, to a trade of {currency}51.61 per barrel by 10:34 AM ET (15:34 GMT) compared to the {currency}51.75 ahead of the report.

In its weekly report, the U.S. Energy Information Administration said that the crude oil inventories rose by 13.830 million barrels at the end of the week of February 3. The market analysts’ had anticipated a crude stock build of only 2.529 million barrels, even though reported the American Petroleum Institute late Tuesday of a surge in supply of 14.227 million barrels, the second highest in its history.

The supplies at Cushing, Oklahoma, the primary delivery point for Nymex crude, an increase of 1.143 million barrels last week, according to the EIA. The total U.S. crude oil inventories stood at 508.6 million barrels as of last week, according to the press release, that the EIA considered to be “close to the upper limit of the average scale for this time of year.”

However, it was also shown in the report that the gasoline inventories dropped by 0.869 million barrels, in comparison to the expectations for a build of 1.071 million barrels, while the distillate stockpiles increased by only 0.029 million barrels, compared to the forecasts for a growth of 0.300 million.

Elsewhere, in London on the ICE Futures Exchange, Brent oil for April delivery fell 42 cents (0.76%), to {currency}54.63 by 10:37 AM ET (15:37 GMT), compared to {currency}54.76 before the release.

In the meantime, Brent’s premium to the WTI crude oil contract stood at {currency}3.01 a barrel by 10:38 AM ET (15:38 GMT), compared to the gap of {currency}2.88 by Tuesday’s close of trade.

The futures have been trading in a narrow range around mid-{currency}50 during the past month as the sentiment in oil markets has been pulled between hopes that an oversupply could be curbed by cuts in output announced by major global producers and expectations regarding a rebound in the shale production for the U.S.

There has been a rise in U.S. drilling activity by over 6% since mid-2016, bringing it back to the levels it was in late 2014 when the strong U.S. crude output has contributed to the oil prices collapsing.

The revival in U.S. drilling has increased the concerns regard the ongoing rebound in U.S. shale production that it could derail efforts by other major producers to rebalance the global oil supply and demand.

The Energy Information Administration stated that the U.S. would pump the most crude next year since 1970, as the OPEC cuts increase prices and it will benefit domestic producers.

OPEC and non-OPEC countries have made a strong starting to the bringing down their oil output to under the first such pact in over a decade as the global producers are looking to reduce the oversupply and support prices.

January 1 signified the official start of the deal agreed by the OPEC and non-OPEC member countries, like Russia in November last year to drop the output by almost 1.8 million barrels each day to 32.5 million for the next six months.

If it goes according to plan, the deal should reduce the global supply by approximately 2%.

According to the recent reports, OPEC compliance with the agreement is 91%, but as Ellen R. Wald, PhD an expert in the global energy industry remarked, “The real test for the OPEC will be if the cuts will be reflected in the higher oil prices throughout the six-month period of the deal.”

In that regard, oil ministers for Iran and Qatar announced on Wednesday that OPEC and other major crude-producing nations may need to extend the cuts in output into the second half of the year to re-balance the market, even though they both noted that it is still too soon to judge if it would be necessary.