Crude Oil Price Plunges 4% Following Massive Inventory Increase

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The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories increased by 3.3 million barrels last week, maintaining a total U.S. commercial crude inventory of 513.2 million barrels. The commercial crude inventory remained in the upper half of the average range for this time of year.

Tuesday evening the American Petroleum Institute (API) reported that crude inventories fell by 4.6 million barrels in the week ending June 2. API also reported gasoline supplies increased by 4.1 million barrels and distillate inventories increased by 1.8 million barrels. For the same period, an S&P Global Platts survey of analysts had consensus estimates for a decrease of 3.5 million barrels in crude inventories, an increase of 250,000 barrels in gasoline inventories, and no change in distillate stockpiles.

Total gasoline inventories also increased by 3.3 million barrels last week, according to the EIA, and have moved above the upper limit of the five-year average range. Total motor gasoline supplied (the agency’s measure of consumption) averaged about 9.6 million barrels a day for the past four weeks, down by 0.7% compared with the same period a year ago.

According to a survey by Platts, crude production by OPEC member nations rose by 270,000 barrels a day in May, to 32.12 million barrels a day. The increase was driven by surging production in Libya and Nigeria, both of which are exempt from the cartel’s agreed production cuts.

The split between Qatar and four other Gulf countries could make OPEC’s goal of rebalancing the crude market even more difficult. The country produces around 610,000 barrels a day, slightly below its agreed target of 618,000 barrels a day. Qatar is also the Gulf’s largest exporter of liquefied natural gas.

If Qatar is shunned, what reason does it have to stick to its agreed crude oil production levels? More production from Iraq, as well as the boosts from Libya and Nigeria, do not augur well for a rebalancing of the crude market.

Before the EIA report, benchmark West Texas Intermediate (WTI) crude for July delivery traded down about 1% at around $47.62 a barrel, and it slipped to around $46.10 shortly after the report’s release. WTI crude settled at $48.19 on Tuesday. The 52-week range on July futures is $44.13 to $58.15.

Distillate inventories increased by 4.4 million barrels last week and remained near the upper limit of the average range for this time of year. Distillate product supplied averaged over 4 million barrels a day over the past four weeks, up by 1.8% compared with the same period last year. Distillate production averaged about 5.3 million barrels a day last week, up about 100,000 barrels a day compared with the prior week’s production.

For the past week, crude imports averaged more than 8.3 million barrels a day, up by about 356,000 barrels a day compared with the previous week. Refineries were running at 94.1% of capacity, with daily input averaging over 17.2 million barrels a day, about 283,000 barrels a day less than the previous week’s average.

According to AAA, the current national average pump price per gallon of regular gasoline is $2.364, down less than a penny from $2.372 a week ago and down about a penny and a half per gallon compared with the month-ago price. Last year at this time, a gallon of regular gasoline cost $2.357 on average in the United States.

Here is a look at how share prices for two blue-chip stocks and two exchange traded funds reacted to this latest report.

Exxon Mobil Corp. (NYSE: XOM) traded down about 0.5%, at $80.84 in a 52-week range of $79.26 to $95.55. Over the past 12 months, Exxon stock has traded down about 11%.

Chevron Corp. (NYSE: CVX) traded down about 0.8%, at $103.37 in a 52-week range of $97.53 to $119.00. As of last night’s close, Chevron shares have added less than 0.1% over the past 12 months.

The United States Oil ETF (NYSEMKT: USO) traded down about 4.4%, at $9.53 in a 52-week range of $9.23 to $12.45.

The VanEck Vectors Oil Services ETF (NYSEMKT: OIH) traded down about 2.6% to $25.60, in a 52-week range of $25.42 to $36.35.