2 months ago

Oil Prices Choppy After Record U.S. Production Offsets Crude Draws

Investing.com - The EIA has been forecasting 12 million barrels per day or more in U.S. production in 2019, although

Investing.com - The EIA has been forecasting 12 million barrels per day or more in U.S. production in 2019, although it hasn't said when exactly that might happen. Its latest weekly dataset shows that day might arrive faster than oil bears hoped.

Prices of both New York-traded West Texas Intermediate crude and London's Brent swung in choppy trading on Wednesday as the U.S. Energy Information Administration's report of a record high of 11.9 million bpd in production offset a larger-than-expected drop in domestic crude stockpiles.

By 11:48 AM ET (16:48 GMT), ( WTI was down 9 cents, or 0.2%, at $52.05 per barrel after falling as much as 1.6% earlier. On Tuesday, WTI settled up 3.2%.

Brent, the global oil benchmark, rose by 31 cents, or 0.5%, to $60.95 after sliding 1% earlier. On Tuesday, Brent settled up 2.8%.

The EIA reported that crude oil inventories fell by 2.68 million barrels in the week to Jan. 11 versus forecasts for a drawdown of 1.32 million barrels. In the previous week the decline was 1.7 million.

Gasoline inventories rose by 7.5 million barrels, compared to expectations for a build of 2.77 million barrels, while distillate stockpiles increased by 2.97 million barrels, compared to forecasts for a gain of 1.57 million.

But more than those numbers, what grabbed traders were the production figures, which grew by 200,000 bpd from the previous week to reach 11.9 million bpd last week.

The weekly dataset came just a day after a separate EIA Short-Term Energy Outlook that reiterated expectations of record high of more than 12 million bpd in 2019 and possibly around 13 million bpd by 2020.

"The increased U.S. production is going to be a thorn in the side of Saudi Arabia, which has been trying to get the market from entering a glut, especially at this time of year when demand is lower," said Tariq Zahir, managing member at Tyche Capital Advisors, an oil-focused hedge fund in New York. "We feel the U.S. production number, along with the larger-than-expected build in gasoline, will provide weakness in the energy complex as the week goes on."

Matthew Smith, analyst at Clipperdata, a New York-headquartered firm specializing in tracking global oil cargoes, said he also found the larger-than-expected increases in product stockpiles disconcerting.

"Any bullish sentiment from the crude draw has been vanquished by emphatic builds to the products - particularly with gasoline lifting inventories some 6 percent above the five-year average," Smith wrote in published commentary.

Notwithstanding Wednesday's market, WTI shows a 14% gain from the start of the year and Brent a 13% rise after rallying to production cuts by Saudi Arabia, which says it is pumping about 800,000 bpd less from a record high of 10.2 million bpd in November. The amount Riyadh would ship overseas in February would be another 100,000 bpd less than January's 7.2 million bpd, the kingdom has said.

Even so, the strong rally in the first couple of weeks of the year has hit a bump on nagging worries about ramping U.S. production and an economic slowdown in China, the world's largest oil importer.