Crude Oil Price Tumbles Below $70 on Surge in Inventories

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The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning showing that U.S. commercial crude inventories increased by 6.5 million barrels last week, maintaining a total U.S. commercial crude inventory of 416.4 million barrels. The commercial crude inventory is now about 2% higher than the five-year average for this time of year.

Tuesday evening the American Petroleum Institute (API) reported that crude inventories decreased by about 2.1 million barrels in the week ending October 12. Gasoline inventories decreased by 3.4 million barrels and distillate stockpiles dropped by about 246,000 barrels. For the same period, analysts expected crude inventories to increase by about 2.2 million barrels. Gasoline inventories were seen down about 1.1 million barrels and distillate inventories were expected to fall by about 1.3 million barrels.

Before the EIA report, benchmark West Texas Intermediate (WTI) crude for November delivery traded down about 1.5% at around $70.87 a barrel, and it traded at $70.35 shortly after the report’s release with further losses in sight. WTI for November delivery opened at $72.43 Wednesday morning, up about 0.7% from Tuesday’s settlement price of $71.92. The 52-week range on November futures is $51.27 to $76.90.

Reuters posted an exclusive report this morning related to advice OPEC countries have received from their lawyers not to talk about the price of oil but, rather, to refer to the stability (fundamental balance) of the oil market. The lawyers fear that a piece of legislation known as the NOPEC (No Oil Producing and Exporting Cartels) Act could be revived in the U.S. Congress and actually be signed by President Trump, who has blamed OPEC for high oil prices.

On Tuesday, Reuters analyst John Kemp posted a story explaining why Saudi Arabia’s attempt to weaponize oil didn’t work in the 1970s and probably won’t work today. The Saudis are facing increasing pressure over the disappearance and likely murder of Washington Post journalist Jamal Khashoggi and have threatened to withhold oil supplies if its critics don’t shut up. Kemp writes:

The [oil] weapon cannot be wielded in a targeted way against specific consuming countries because the oil market is global and fully integrated. Restricting supplies to punish some countries pushes up oil prices for all consumers. …

Saudi Arabia’s refining customers would instead turn to Iran, Russia and the United States for additional supplies and likely reconsider their long-term dependence on the kingdom. …

Sharp rises in oil prices would put a renewed focus on vehicle fuel economy standards as well as accelerating the deployment of electric vehicles.

Rising prices and concerns about unreliable supplies would speed the diffusion of electric vehicles and push oil out of the transport market just as it was pushed out of heating and power generation in the 1980s.

As always, it’s worth reading Kemp’s entire story.

Total gasoline inventories decreased by 2 million barrels last week, according to the EIA, and remain about 7% above the five-year average range. U.S. refineries produced about 10.4 million barrels of gasoline a day last week, up by around 700,000 barrels compared with the prior week. Total motor gasoline supplied (the agency’s proxy for demand) averaged 9.1 million barrels a day for the past four weeks, down by about 100,000 barrels compared with the prior week’s average.

Week over week, U.S. crude oil exports fell by 794,000 barrels a day last week and U.S. production fell by 300,000 barrels a day to 10.9 million barrels a day. Exports averaged 1.78 million barrels a day last week and have a cumulative daily average for the year of 1.85 million barrels a day, a 118% increase over the year-ago export total.

Distillate inventories fell by 800,000 barrels last week and are about 3% below the five-year average range for this time of year. Distillate product supplied averaged 4.1 million barrels a day for the past four weeks, down by about 100,000 barrels compared with the prior week’s average. Distillate production averaged 4.8 million barrels a day last week, down by 200,000 barrels compared to the prior week’s production.

For the past week, crude imports averaged 7.6 million barrels a day, up by 218,000 barrels compared with the previous week. Refineries were running at 88.8% of capacity, with daily input averaging 16.3 million barrels a day, about 77,000 barrels more than the previous week’s average. Exports of refined products jumped by 873,000 barrels a day last week to 5.8 million.

According to AAA, the current national average pump price per gallon of regular gasoline is $2.91, down nearly three cents from $2.91 a week ago and up by more than two cents compared with the month-ago price. Last year at this time, a gallon of regular gasoline cost $2.465 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 1%, at $80.44 in a 52-week range of $72.16 to $89.30. Over the past 12 months, Exxon stock has traded down about 3%.

Chevron Corp. (NYSE: CVX) traded down about 1%, at $116.19 in a 52-week range of $108.02 to $133.88. As of last night’s close, Chevron shares are trading down about 2.9% over the past year.

The United States Oil ETF (NYSEARCA: USO) traded down about 3% to $14.76, in a 52-week range of $10.29 to $16.24.

The VanEck Vectors Oil Services ETF (NYSEAMERICAN: OIH) traded down more than 2%, at $24.00 in a 52-week range of $22.73 to $29.87.