Oil futures plunged Wednesday, erasing early gains to see the U.S. benchmark end at a nearly six-month low after government data showed an unexpected rise in crude and gasoline inventories, erasing gains seen after the Organization of the Petroleum Exporting Countries and its allies delivered a meager production increase.
West Texas Intermediate crude for September delivery
fell $3.76, or 4%, to close at $90.66 a barrel on the New York Mercantile Exchange, the lowest front-month settlement since Feb. 10.
September natural gas
shed 7.3% to end at $8.266 per million British thermal units.
The Energy Information Administration said U.S. crude supplies were up 4.5 million barrels in the week ended July 29, while gasoline supplies rose 200,000 barrels. Distillate stocks fell 2.4 million barrels, according to the agency.
Analysts surveyed by S&P Global Commodity Insights, on average, had looked for a 1.7 million barrel drop in crude supplies, while gasoline stocks were expected to fall 1.5 million barrels and distillates were seen down 500,000 barrels. The American Petroleum Institute late Tuesday had reported a 2.2 million barrel rise in crude stocks and a 204,000 barrel drop in gasoline inventories, Dow Jones Newswires reported.
“A pop in strength via seaborne imports, as well as a drop in refining activity to the lowest level since early May (per crude inputs), has resulted in a solid build to crude inventories — acting as a bearish counterweight to the earlier bullish announcement from OPEC+ to only increase production by 100,000 barrels per day,” said Matt Smith, lead oil analyst for the Americas at Kplr, in an email.
Meanwhile, choppy implied demand for gasoline pointed to much lower throughput last week, leading to a minor rise in inventories, while distillates stocks fell once again, he said.
Earlier, OPEC and its allies, known as OPEC+, agreed to raise production by 100,000 barrels a day in September, a move that analysts didn’t expect to significantly affect prices. The move comes after U.S. President Joe Biden last month visited Saudi Arabia, OPEC’s de facto leader and swing producer.
Concerns over tight spare capacity and uncertainty over the longer-term supply outlook were cited by OPEC as a factor in the decision.
Meeting participants “noted that the severely limited availability of excess capacity necessitates utilizing it with great caution in response to severe supply disruptions,“ OPEC said in a statement following the meeting.
“In my opinion, market fundamentals are slipping, and the end of summer driving season will necessitate less crude oil through the refinery. However, the 100,000 is a slap to the face for President Biden,“ said Robert Yawger, executive director of energy futures at Mizuho Securities, in a note.
“Also, some analysts will question whether Saudi Arabia and the other Gulf states actually have spare capacity available, as French President Macron famously implied on an open mic during the G-7 meeting” in June, Yawger wrote.