Oil Prices Pare Losses Amid Mixed Inventory Data

Strategic Insights -

Oil prices pared losses on Wednesday after the U.S. government released data showing a significant drop in crude stockpiles at the key hub Cushing, despite overall inventories reaching 16-year highs. The mixed report from the Energy Information Administration (EIA) highlighted the complex dynamics at play in the oil market, with analysts and traders weighing the implications of swelling inventories and weakening demand against the impact of OPEC production cuts and Fed stimulus actions.

Key Takeaways:

  • Crude oil inventories soared to 16-year highs, with a 3.3 million barrel increase to 356.6 million barrels, the highest since July 1993, according to the EIA.
  • Despite the overall increase, stockpiles at the Nymex delivery point in Cushing, Okla., fell 2.2 million barrels, providing support to oil prices.
  • The market reaction to the report was mixed, with some analysts interpreting the drop in Cushing inventories as a sign of a stronger market, while others saw the large increase in overall inventories as a bearish factor.
  • Gene McGillian, an analyst at Tradition Energy, stated that "the market seems to be looking at that drop in Cushing and ignoring the fact that the total's up so high."
  • Crude prices have found support in recent days due to OPEC production cuts, which have filtered through to global supplies, and weakened the dollar as investors seek a hedge against inflation and a safer haven amid economic turbulence.
  • The greenback came under further pressure after Treasury Secretary Timothy Geithner said he is open to considering a new global reserve currency, while also stating that the dollar will likely remain the world's dominant reserve currency "for a long period of time."
  • Crude prices are also finding support in U.S. equity markets, which were buoyed by unexpected gains in the U.S. durable goods report and the first increase in new-home sales for seven months.

Statistics:

  • Crude oil inventories increased by 3.3 million barrels to 356.6 million barrels in the week ended March 20, the highest since July 1993.
  • Stockpiles at the Nymex delivery point in Cushing, Okla., fell 2.2 million barrels.
  • Gasoline stocks were down 1.1 million barrels, and distillates (which include heating oil and diesel) fell 1.6 million barrels.
  • Crude prices closed above $50/bbl in the previous four sessions.
  • The dollar has weakened significantly, with the greenback coming under pressure due to various economic and market factors.

Sources:

  • "Oil prices pare losses after EIA reports rise in crude inventories" by Hyun Young Lee, Dow Jones Newswires, March 25, 2009.
  • Energy Information Administration (EIA) weekly data release, March 25, 2009.
  • Tradition Energy, analyst Gene McGillian, as quoted in "Oil prices pare losses after EIA reports rise in crude inventories" by Hyun Young Lee, Dow Jones Newswires, March 25, 2009.