Price of crude surges after inventory drop

The Energy Department today reported a huge drop in crude oil supplies, along with a decline in distillate fuel, that has helped oil futures climb strongly.

The Energy Information Administration said today that US crude oil inventories fell 7.66 million barrels last week, taking the total to 350.2 million barrels, the lowest stockpile of crude in almost two years. A drop of just 1.3m barrels had been expected, based on a Bloomberg poll of economists.

The decline in oil supplies is the result of lower crude imports, which dropped 13%, and an increase in fuel demand, and comes in spite of increase domestic production, with US output rising 14,000 barrels a day to a total of 8.16 million for last week, which is the highest rate of production since 1988.

Crude oil futures for February rose 1.87% to $94.27 a barrel by mid-afternoon in New York, the price also being boosted by a jump in manufacturing activity around the New York state, according to the New York Fed’s latest survey.

US supplies of gasoline increased again, climbing 6.18 million barrels last week, more than twice the amount that had been forecast. Such a large rise in one of crude’s refined products is a bearish factor, but was offset by a surprise drop in distillate fuel. Distillate inventories declined by 1.02 million barrels, when an increase of more than 1 million had been expected.

The drop in crude inventories could have been even larger, but for the cold weather. Severe cold from the polar vortex forced some refinery units to close last week, which would explain a sizeable drop in run rates. Capacity utilisation fell to 90%, a 2.3% fall from the week before.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.