Oil-Product Prices Fall as Supplies Climb
U.S. Inventory Data Confirm the Market Is Still Oversupplied
Prices at the gas pump are heading even lower.
Gasoline futures fell to nearly a six-year low on Wednesday after U.S. government data showed oil and fuel supplies rising to a record high last week, the latest evidence of a petroleum glut that has rattled financial markets and raised questions about the strength of global economic growth.
U.S. crude-oil prices rose modestly, but there was little indication that the market, which has plunged by 55% since late June, has hit a bottom.
Weekly inventory data released by the federal Energy Information Administration reinforced the belief among many investors and traders that increasing oil output continues to overwhelm the growth in demand, a situation that is likely to further undercut prices across the board.
U.S. stockpiles of crude oil, refined fuels and other types of petroleum rose 0.9% to 1.149 billion barrels in the week ended Jan. 2, according to the EIA. That is the highest level ever in weekly data dating back to 1990, and beats the previous high set in June 2013. The total doesn’t count the barrels held in the nation’s strategic petroleum reserve.
“There is no shortage, anywhere, at the moment,” said Donald Morton, senior vice president of Herbert J. Sims & Co., who oversees an energy-trading desk at the Fairfield, Conn., investment bank. “Our inventories are getting high.”
Minutes from the latest Federal Reserve meeting, also released Wednesday, indicated that central-bank officials expect low oil prices to ultimately be positive for the economy. But some voiced concern that the drop signaled slowing growth outside the U.S., a potential headwind for the U.S. economy. The decline in oil prices is expected to keep inflation running below the Fed’s 2% target in the near term.
The large increases in fuel stockpiles suggest that the glut of crude oil is morphing into a glut of refined products, and that demand isn’t rising rapidly enough to absorb the growing supplies.
U.S. consumption of petroleum products fell slightly in the week, the EIA said. The lower demand could be due to moderate winter weather, which likely lowered heating-oil consumption, analysts said.
Gasoline inventories rose by 8.1 million to 237.2 million barrels, the highest level since February 2011, according to the EIA. Analysts expected an increase of 3.2 million barrels.
Distillates, a fuel category that also includes heating oil as well as diesel, posted their biggest weekly gain on record, according to the EIA data. Inventories rose by 11.2 million barrels, compared with expectations for a 2.3-million-barrel increase, to their highest since March 2012.
“This is clearly an extraordinary build” in distillates, said Andy Lipow, president of Lipow Oil Associates, a Houston consulting firm. “Refineries are continuing to turn the crude-oil surplus into a petroleum-product surplus.…They’re hoping that the demand materializes.”
Gasoline futures fell 1.2% to $1.3376 a gallon, the lowest level since March 2009, while diesel futures lost 1.5% to $1.6999 a gallon, the lowest since September 2009.
The decline in gasoline futures portends further drops in the price of gas at the pump, which tends to lag behind trends in wholesale markets by several days. A gallon of regular gasoline in the U.S. averaged $2.19 on Wednesday, according to AAA. Pump prices are at their lowest since May 2009 and have fallen for a record 104 consecutive days, according to the motor club.
Economists say the fall in pump prices has been a boon for consumers, and investors are betting that retailers will benefit from more spending money in Americans’ wallets.
However, some market watchers said last week’s large increase in distillate volumes could be due to a temporary drop in exports or one-time data adjustments. Refiners in recent years have capitalized on rising U.S. oil output by ramping up oil-product exports.
The build in distillates is “an anomalous number,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service. “Maybe there were some export cargoes that didn’t go out.”
While cheaper pump prices are expected to bolster the consumer-driven U.S. economy, the underlying reason—sharply lower crude-oil prices—have shaken stocks and bonds of oil-producing companies and regions that have benefited from the U.S. oil boom.
U.S. oil prices rose 1.5% on Wednesday to $48.65 a barrel on the New York Mercantile Exchange following two days of steep losses. The relative stability of oil prices Wednesday helped stock markets in the Europe and U.S. advance. Crude-oil supplies fell by 3.1 million barrels last week, counter to analysts’ expectations of a 300,000-barrels build, but optimism over the drop was offset by the sharp rise in gasoline and diesel inventories.
Oil supplies rose by 1.3 million barrels in Cushing, Okla., the delivery point for the Nymex contract. Falling supplies at Cushing helped boost oil prices above $100 a barrel last spring, but stockpiles are now the highest since February 2014.
Few traders and analysts think oil is poised for a sustained rebound. Members of the Organization of the Petroleum Exporting Countries haven’t asked for an emergency meeting despite the plunge in oil prices. OPEC’s decision in November to keep production steady was a major catalyst in oil’s selloff.
OPEC is next scheduled to meet in June, though in times of market turmoil, the group has frequently convened emergency meetings.
“We need to give the market patience and time to balance itself,” a Gulf OPEC delegate told The Wall Street Journal on Wednesday.
Brent crude, the global benchmark, inched up 0.1% to $51.15 a barrel on Wednesday after falling below $50 during intraday trading.
Source: WSJ – Oil-Product Prices Fall as Supplies Climb
