By Barani Krishnan
Investing.com - The trend isn't always your friend. The oil market's most-hardened proponents are discovering this as crude's gains this year were confounded again by antagonistic data.
New York-traded West Texas Intermediate crude fell more than 1% on Wednesday and London's Brent oil slid, too, as the Energy Information Administration reported a crude stockpile build 6x above market forecasts for last week, countering equally stunning, but bullish, dataset from the previous week.
WTI was down 69 cents, or 1.2%, at $55.87 per barrel by 11:43 AM ET (16:43 GMT). The U.S. crude benchmark has struggled to make much headway since a near-3% slide on Friday.
Brent, the global oil benchmark, showed an intraday loss of 34 cents, or 0.5%, at $65.91 per barrel.
Notwithstanding Wednesday's performance, crude prices are still showing hefty gains for the year, with WTI up 23 % and Brent rising 22%.
Crude oil inventories rose by 7.07 million barrels in the week to March 1, the EIA's latest weekly report said. That compared with forecasts for a stockpile build of 1.20 million barrels. In the previous week to Feb. 24, crude inventories slumped by 8.65 million barrels.
But the EIA inventory report wasn't entirely bearish, as the agency also reported sharper-than-expected declines in gasoline and diesel, shoring up sentiment in fuel products.
Gasoline inventories fell by 4.23 million barrels, compared to expectations for a draw of 2.08 million barrels.Distillate stockpiles, which include diesel, decreased by 2.39 million barrels, compared to forecasts for a decline of 1.44 million.
The EIA data landed amid a tug-of-war in the market between OPEC-led production cuts that had been driving this year's rally in oil and a weakening Chinese economy, which has tempered investor appetite across commodities.
OPEC and its allies also face challenges from the likes of Chevron (NYSE:NYSE:CVX) and Exxon Mobil (NYSE:NYSE:XOM), which on Tuesday announced plans to churn out close to 1 million barrels of shale oil each per day in the Permian Basin, one of the most prolific oil basins in the U.S.
"The question for oil traders really is whether the shale projections are going to come into place fast enough to avert a supply squeeze this summer," Phil Flynn, senior energy analyst at The Price Futures Group in Chicago, said, referring to the Chevron and Exxon forecasts. "With OPEC cuts already in full force and refiners getting ready to come out of maintenance, it may be too little too late for this summer driving season."
Oil bears, however, stayed focus on the negative numbers reported by the EIA, including the near-2% build at the Cushing, Okla. storage hub for crude and steady record highs in U.S. production at 12.1 million barrels.
"The headline number of such a larger-than-expected build in crude, coupled with U.S. production holding at its record and the fresh surfeit in Cushing supplies should, in our opinion, continue to weigh on the market," said Tariq Zahir, who typically has a bearish outlook on oil and plays spreads in long-dated WTI futures for New York-based Tyche Capital Advisors.
"The contango structure in oil is also getting more weak across the forward curve and continues to weigh on spot prices," Zahir added. "This will encourage more storage building in the weeks to some."
Contango is a market dynamic where the front month contract trades at a discount to its next nearest month and beyond, creating losses for investors switching from the spot contract to months with further maturities. Backwardation, the opposite of contango, creates a positive yield in such rollovers.