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Oil Prices Inch Lower On Early Data Showing Builds In U.S. Gasoline Inventories

Two-day slump in crude oil prices triggered by bloated inventories

Crude oil prices drifted into negative territory after preliminary data on U.S. oil and gasoline stocks showed demand was lacking, though analysts said the negativity might not last.

Preliminary data from the American Petroleum Institute showed U.S. commercial crude oil inventories increased by 2.6 million barrels during the week ending Jan. 15. For petroleum products, gasoline levels increased by 1.1 million barrels, while distillates, which include diesel, swelled by about 816,000 barrels.

Phil Flynn, a senior energy analyst at The Price Futures Group in Chicago, added that inventory levels at the key U.S. storage hub in Cushing, Okla., actually went down considerably, by about 4 million barrels.

“I thought the big drop in Cushing was supportive of higher prices,” he said. “It signals that U.S. refiners are continuing to ramp up output.”

A BP refinery in the Port of Rotterdam in the Netherlands in April 2020. (Dean Mouhtaropoulos/Getty Images)

An increase in refinery activity would indicate an expected increase in demand, something that would send oil prices higher. Inventory levels, meanwhile, are indicative of market demand, with gains having an inverse relationship to the appetite for oil and petroleum products.

The market reaction to the early data, however, was somewhat muted. The price for Brent crude oil, the global benchmark, rallied Wednesday in response to the swearing-in of President Joe Biden, as well as his expected $1.9 trillion stimulus package. The benchmark retreated marginally in the Thursday session, following the late Wednesday release of API data.

In an emailed note, Tamas Varga, an oil analyst at London oil broker PVM, said the build in product inventories such as gasoline was not as great as expected, which would explain the muted reaction in the market on Thursday.

“The negative reaction to the statistics is understandable but might not dent confidence for a prolonged period,” he said in part.

API data differed somewhat from the estimates offered by S&P Global Platts. The reporting agency expects to see commercial crude oil inventories drop by about 2.5 million barrels. On the products side, gasoline levels are expected to show a 2.7 million barrel build, while distillates could see an increase of about 800,000 barrels, similar to the API’s estimate.

David Zinamon, an analyst at Platts, told us a build in gasoline levels is something of a given for this time of year given the post-holiday slump in demand.

EIA data show trends in the storage level of commercial crude oil in the U.S. (U.S. Energy Information Administration)

Platts added that U.S. crude oil exports increased modestly, from 3.01 million barrels per day for the week ending Jan. 8 to 3.03 million bpd during the week prior. An increase in demand in the Asian market may be driving U.S. crude overseas.

Official data from the Energy Information Administration, part of the Energy Department, was delayed twice this week; once by the federal holiday on Monday and again because of the inaugural events on Wednesday. Those data are out Friday.

(Edited by Alex Patrick and Bryan Wilkes)