Amid growing worries about the direction that oil prices are heading into, the Energy Information Administration reported a 5-million-barrel build in US commercial oil inventories for last week, bringing total US crude oil inventories to 533.1 million barrels.
The report comes a day after API’s latest estimate dealt yet another blow to prices, pegging inventories at 4.53 million barrels more than a week before.
Last week’s EIA figures were also discouraging: for the seven days to March 10 the authority reported a modest decline of 200,000 barrels, reinforcing concern that the glut will continue despite some cuts in production made by OPEC and 11 non-OPEC producers.
In its latest report, the EIA also reported a draw in gasoline inventories of 2.8 million barrels, with refinery processing rates averaging 15.8 million barrels of crude daily. Gasoline production was up to 9.8 million barrels in the period.
US inventories have seen major builds over the last few months, contributing substantially to a dampening of optimism for the immediate future of oil prices. The latest news from the OPEC camp as well as a recent note to investors from Goldman Sachs is painting a gloomy picture.
While some OPEC members are on board with a production cut extension, Saudi Arabia early this month declared it will not partake in measures that will only support US shale producers’ ramping up of production. It later softened its stance, so the prospects of an extension look brighter.
Goldman Sachs warns that mega projects expected to start commercial production this year could add a million barrels to global supply, erasing any gains made thanks to the OPEC cut, extended or not. The extension dilemma is indeed a tough one: OPEC can either agree to extend the cuts and risk losing more market share or start raising production from July 1, bringing prices further down.
Meanwhile, US producers are facing pressure from banks: if WTI falls to $45, lenders are more likely than not to start cutting credit lines, hampering the industry’s recovery.
Amid these developments, at the time of writing Brent crude was trading at $50.16 a barrel and WTI was at $47.63.
By Irina Slav for Oilprice.com