New York — Oil fell 2% on Wednesday after a sharp rise in US inventories of refined fuel suggested demand may be flagging, while US Crude production hit another weekly record.
Government data showed that US crude stocks fell 5.6-million Barrels, more than expected, though this was partially the result of the closure of the Keystone pipeline after a leak in South Dakota in mid-November, which cut flows to Cushing, Oklahoma. The line re-opened on Tuesday.
However, petrol stocks rose by 6.8-million barrels and distillate inventories were up 1.7-million barrels, both exceeding expectations according to a Reuters poll. This hit prices of both crude and products in a market which is already heavily tilted bullish and thus potentially vulnerable to a sell-off, analysts said.
Petrol stocks tend to build in December, but at 221-million barrels of inventory, stocks are slightly above the five-year average for this time of year.
US crude production rose to 9.7-million barrels per day (bpd), another weekly record, though short of all-time records reached in the 1970s. This increase may undermine efforts by global producers to cut supply.
Supply cuts by oil cartel Opec, Russia and other producers, which were extended for the whole of 2018 at a meeting last week, have helped lift Brent prices by more than 40% since June. Prices have slipped from November’s peak, which represented two-year highs.
"The sentiment-driven support to crude oil prices has somewhat dissipated as market participants look beyond last week’s Opec meeting," said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London.
Brent crude futures were down $1.23, or 2%, at $61.63 a barrel by 4.21pm GMT, after reaching a session high of $62.93, while US crude futures dropped $1.29, or 2.3%, to $56.33.
Russian oil minister Alexander Novak said it was too early to talk about exiting the Opec agreement, and that the process would be gradual. Analysts, such as Goldman Sachs, have said that the expected rise in demand in 2018 would mostly be offset by US and Canadian supply growth.
US oil production has climbed by 15% since mid-2016 and is now close to levels of top producers Russia and Saudi Arabia. "With US production, we’re still in the throes of seeing that go ever higher," said John Kilduff, partner at Again Capital in New York. "There’s only going to be more production coming, which is very problematic for Opec/non-Opec deal adherence."
