Crude Oil Prices Face New Headwinds

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Researched by Industrial Info Resources (Sugar Land, Texas)--After falling almost 8% on Monday and another 4% on Tuesday, the price for West Texas Intermediate (WTI) crude oil futures was greeted with further headwinds on Wednesday as the U.S. Energy Information Administration (EIA) reported that U.S. crude oil inventories had risen by more than 380,000 barrels to 465.8 million barrels for the week ending July 3, despite the expectations of many analysts that there would be a drawdown for the week.

The EIA's most recent Short-Term Energy Outlook, released on Tuesday, July 7, was able to comment on the plunge in oil prices from the day before: "Crude oil prices fell by about $4 [per barrel] on July 6 in the aftermath of the 'no' vote in Greece on the economic program, as well as lingering concerns about lower economic growth in China, higher oil exports from Iran, and continuing growth in global petroleum and other liquids inventories," the agency said in the report.

The growth in the supply in oil across the world is not expected to let up anytime soon. The agency estimates that global crude oil inventory builds averaged 2.2 million barrels per day (BBL/d) during the first half of 2015, and will average 1.5 million BBL/d for the second half of the year.

"The slowing increases in inventory reflect rising demand and slowing production growth outside of the Organization of the Petroleum Exporting Countries (OPEC), particularly in the United States," the agency writes in the STEO.

Accompanying Wednesday's news of the growth in U.S. crude oil reserves, the EIA also reported that U.S. supplies of gasoline and distillates, which include diesel, also were up, despite what was thought to be a record number of people planning to travel in the U.S. over the July 4 weekend. U.S. gasoline inventories increased 1.2 million barrels last week, despite a decrease in gasoline production of approximately 100,000 barrels from the previous week.

Refinery runs remains strong, and U.S. refineries used 94.7% of their operable capacity last week. Such operating statistics continue to push U.S. exports of refined products ever higher. During the first four months of the year, U.S. petroleum product exports averaged 4.1 million BBL/d, about 500,000 BBL/d higher than the corresponding period of last year.

The downturn in prices and increase in both U.S. and global supply is discouraging for traders and producers alike. Last week marked the first increase in the number of U.S. oil drilling rigs after 29 weeks of consecutive decreases. As the EIA pointed out, several international factors featured in Monday's oil price plunge--perhaps the most basic of these is the prospect of sanctions being lifted on Iran, opening the country up for oil exports. The consistent extension of negotiating deadlines suggest that a deal between Iran and the six Western nations instituting the sanction is almost inevitable, although no one knows exactly what sort of schedule the country would be on in introducing its oil back into the global market.

Iran is one of the 12 member countries of the Organization of Petroleum Exporting Countries (OPEC), which in June produced approximately 31.6 million BBL/d, the organization's highest production in about three years, suggesting that the glut in global oil supply will not be diminishing anytime in the near future.

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