Crude Oil - Commentary

Crude oil continued to decline on Thursday morning, extending the falls seen on Wednesday afternoon after the weekly inventory report from the US government showed an unexpected rise in stockpiles. Crude oil supplies rose by 970,000 barrels to 358.3 million barrels in the week to 17 September, according to data from the Energy Information Administration (EIA). Gasoline stockpiles also increased, by 1.59 million barrels to 226.1 million barrels. Bloomberg reported that inventory levels had been expected to fall due to the eight day shutdown of the Enbridge Energy pipeline, which sends Canadian oil to the Mid-West of the United States. During the week, oil found some support from a falling US dollar, which weakened in the wake of the Federal Reserve meeting on 21 September. The Fed’s Open Market Committee had intimated that slowing inflation and sluggish growth in the world’s largest economy might require further action, expanding the record $2.3 trillion balance sheet as early as November. Weiss Research commented that ‘the inventory numbers were bigger than expected, but the dollar is the prime driver right now’, adding that ‘once this news is digested, oil will move higher along with the precious metals’. [1] On Tuesday, the private-sector American Petroleum Institute (API) said that crude inventories increased by 2.2 million barrels, confounding analyst expectations of a fall of 1.5 million barrels. The increase in supply arising from the slowing US economy stands in sharp contrast to robust consumption levels in emerging markets, with Chinese demand for oil expanding by 7.6% in August. Barclays Capital caught the mood of the times as it observed that ‘despite the cautious outlook on oil demand still often expressed in market sentiment, the actual flow of data continues to point to extremely robust global demand indications’.