uploads/2016/01/WTI-Brent-Crude-Oil-Price-Movements-2016-01-271.jpg

Why Have Crude Oil Prices Ignored Massive Inventory Builds?

By

Updated

Crude oil prices

WTI (West Texas Intermediate) crude oil prices ended the previous week with ~9% gains on a weekly basis to close at $32.2 per barrel on January 22, 2016. This week, WTI crude oil prices fell 2.7% to close at $31.3 per barrel on January 26. On the other side, Brent crude oil prices also posted ~11% gains on a weekly basis to close at $32.2 per barrel on January 22. This week, Brent crude oil prices fell by 1.6% to close at $31.6 per barrel on January 26.

Article continues below advertisement

OPEC and Non-OPEC crude oil producers signaling production cuts

WTI crude oil prices were on a downturn from the beginning of 2016 as they faced massive pressure from crude oil inventory builds and very low distillate demand. In fact, WTI crude oil prices almost tested 13-year lows to register a loss of more than 20% in 2016.

The lower crude oil prices raised a bullish sentiment among investors and led to profit booking from the short covering of positions. This resulted in 9% gains in the previous week. Investors even neglected a 4.0 MMbbls (million barrels) of crude oil inventory builds for the week ending January 15, 2016, on expectations that snowstorms and colder temperatures would boost the heating oil demand.

Crude oil prices fell by 5.7% on January 25, 2016, and the investors’ focus returned to oversupply concerns as Iraq’s record crude oil output of 4.1 MMbbls raised fears about a fall in crude oil prices. On January 26, 2016, crude oil prices posted 3.3% gains by ignoring the American Petroleum Institute’s report. This report showed inventory builds of 11.4 MMbbls of crude oil in the week ended January 22, 2016. Also, crude oil prices (USO) rose due to signals from OPEC[1. Organization of the Petroleum Exporting Countries] and non-OPEC crude oil producers about a deal on cutting production levels.

Impact

The rise in crude oil inventory levels was ignored because of positive news on production cuts, but the rise in inventory levels will likely harm prices. Lower crude oil prices bear a negative impact on crude oil producers such as Apache (APA), Anadarko Petroleum (APC), Continental Resources (CLR), Chesapeake Energy (CHK), Devon Energy (DVN), and Total (TOT).

Advertisement

More From Market Realist