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Oil Dips on Unexpected Weekly Jump in US Crude Supplies

March 27, 2019 at 15:30 by Andrew Moran

Crude oil futures are recording a modest decline midweek after the US government reported an unexpected increase in US inventories. Oil prices have been finding support on potential supply disruptions in Venezuela, but these gains were offset by boosts in fuel stockpiles. Investors will now likely concentrate on supply and demand trends for the remainder of the week.

May West Texas Intermediate (WTI) crude oil futures tumbled $0.35, or 0.58%, to $59.59 per barrel at 14:55 GMT on Wednesday on the New York Mercantile Exchange. US crude prices have been sliding over the last five trading sessions, but they are still up nearly 27% year-to-date.

Brent, the international benchmark for oil prices, is trading relatively flat in the middle of the trading week. May Brent crude futures slid $0.07, or 0.1%, to $67.90 a barrel on London’s ICE Futures exchange. Brent is also up a whopping 25% so far this year.

According to the US Energy Information Administration (EIA), domestic crude inventories climbed by 2.8 million barrels for the week ending March 22. This surprised markets because the median estimate was a decline of 2.2 million barrels. Gasoline stockpiles dropped by 2.9 million barrels, while distillate supplies fell 2.1 million barrels.

The US Baker Hughes total oil rig count was 824, down from 833 in the previous week.

Demand is expected to drive international crude markets this week. After disappointing manufacturing data from the US, Europe, and Asia were released, crude traders feared that these were signs of an economic slowdown, which would drive down demand for oil. But supply trends may keep demand woes at bay.

Venezuela has been experiencing a plethora of disruptions, following massive power blackouts. The country’s primary oil export port and four crude upgraders could not sustain operations after the blackout, which is the second one this month.

Meanwhile, Organization of the Petroleum-Exporting Countries (OPEC) members have cut their output and exports to lift the price, and the latest reports suggest that an extension on the production freeze may be agreed upon at its next meeting. Iran, whether it wants to participate or not, has been crippled by US sanctions, significantly affecting its oil industry.

The shale-oil revolution in the US took a bit of a breather as one of the biggest energy markets experiences disruptions, too. A petrochemical leak and fire outside of Houston restricted waterways and ship traffic, impacting transport and refining operations. In Oklahoma, bad winter weather led to a series of production outages.

Overall, hedge funds and money managers have bolstered their long holdings for crude oil, betting that demand will be sustained, according to the US Commodity Futures Trading Commission (CFTC).

In other energy markets, May natural gas futures plunged $0.045, or 1.58%, to $2.70 per million British thermal units (btu). May gasoline futures shed $0.015, or 0.83%, to $1.88 per gallon. May heating oil futures were unchanged at $1.99 a gallon.

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