Oil Prices Drop 2% as Another Major U.S. Crude Build Cools Bull Market

Oil Prices Decline After Significant Build in Crude Stockpiles

By Barani Krishnan

Oil prices experienced their first drop in five sessions on Wednesday following a noteworthy increase in U.S. crude stockpiles. This surge indicated that the market may not be as undersupplied as some traders had believed.

The Energy Information Administration (EIA) reported that U.S. crude production estimates were raised for the second consecutive week, further impacting market sentiment. This adjustment came as the industry had nearly dismissed the possibility of increased output from local drilling operations.

The U.S. crude benchmark settled down $1.50, or 1.9%, at $77.43 per barrel. Earlier, WTI dipped to a low of $76.86, following a seven-year high of $79.47 recorded the previous day. Despite this recent decline, the U.S. crude benchmark remains up nearly 60% year-to-date.

Meanwhile, London-traded crude, which serves as the global benchmark for oil, finished down $1.48, or 1.8%, at $81.08. Brent crude surged to $83.11 on Tuesday and has increased by 56% so far this year.

According to the EIA’s Weekly Petroleum Status Report, inventories rose by 2.35 million barrels for the week ending October 1, building upon the 4.58-million barrel increase reported for the prior week. This increase in inventories coincides with production levels in the U.S. Gulf Coast returning to near-normal following the impacts of Hurricane Ida, which occurred at the end of August.

Analysts had anticipated a crude draw of 418,000 barrels for the same period, reflecting a significant discrepancy in forecasts. Prior to these two weeks, crude stockpiles had decreased by approximately 10 million barrels over a three-week period due to disruptions from Hurricane Ida, which initially resulted in over 90% of oil and gas production facilities in the Gulf being shut down.

John Kilduff, founding partner at a New York energy hedge fund, commented, “The hangover from Ida is finally over. We could see consistent crude builds from here based on typical fall-season trends, although it’s important to note that nothing in this market is ‘normal’ anymore.”

In addition to the rise in crude stockpiles, the EIA increased its production estimates to 11.3 million barrels per day for the week ending October 1, up from a previous estimate of 11.1 million per day. This marks the second consecutive week of upward adjustments to production figures, as the agency had raised estimates by 500,000 barrels per day the previous week.

Refinery utilization was reported at 89.6%, close to the normal range of 90%-92% typically observed during this time of year.

In a further update, the EIA reported that gasoline inventories rose by 3.26 million barrels in the week ending October 1, significantly surpassing the forecast of a 400,000 barrel increase. The prior week’s gasoline stockpiles also showed a rise of 3.48 million barrels.

Additionally, inventories of distillates, which include diesel and heating oil, decreased by 396,000 barrels during the latest week, contrary to an expected decline of 750,000 barrels.