U.S. crude prices briefly turned negative but reversed course to tack on gains after the U.S. government reported crude stocks rose more than expected last week
The Energy Information Administration reported Crude inventories rose by 7.8 million barrels in the last week, compared with analysts’ expectations for an increase of 4.8 million barrels, as imports jumped and refiners trimmed throughput.
That brought stocks to a total of 502.7 million barrels in the week through Jan. 29, marking the first time on record they exceeded 500 million barrels.
Data released by the American Petroleum Institute on Tuesday showed U.S. crude stocks rose by 3.8 million barrels to 500.4 million in the week to Jan. 29.
Crude stocks at the Cushing, Oklahoma, delivery hub rose by 747,000 barrels, EIA said. Gasoline stocks were also up, rising by 5.9 million barrels, while distillates fell by 777,000 barrels.
Brent for April delivery was up 92 cents to $33.64 a barrel by 10:49 a.m. ET, still above a session low of $32.30. U.S. crude futures was up 93 cents to $30.81.
Oil rose earlier on Wednesday after Russia repeated its willingness to take part in talks with OPEC producers to cut output and boost prices, although analysts said rising U.S. crude inventories could put a brake on a bigger rally.
Russian Foreign Minister Sergei Lavrov said if there is consensus among the Organization of the Petroleum Exporting Countries and non-OPEC members to meet, “then we will meet”.
This helped push the price of oil, which had earlier been set for a third day of declines after data on Tuesday showed another big build in U.S. inventories, off the day’s lows.
The low of $32.30 in Brent also marked the halfway point between the price lows in January and the highs seen earlier this week, and a point at which speculators swooped in to buy.
“$32.30 is exactly the 50-percent retracement of the rally that we’ve had and that’s helped. Now, attention has turned towards inventory (data) for today, on the assumption that a lot of the expected ‘bad news’ has been priced in already,” Saxo Bank manager Ole Hansen said.
“Then obviously there is Lavrov doing his utmost to verbally intervene in the market and I think that is also playing its part. So we are having a small bounce at the moment, trying to make up for some lost ground.”
The 70 percent drop in the crude price over the last 18 months has hit the budgets of oil-dependent nations such as Nigeria, Venezuela, Russia and even some of the richer Gulf nations such as Bahrain.
Demand for oil, particularly in Asia, proved robust last year, but not enough to absorb near-record supply and ballooning inventories of unwanted crude.
“The (global) inventory situation is going to get worse in the second quarter as we hit the peak refining rate at the end of this quarter,” Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo, said.
A rebalancing between oil demand and supply will not come until mid-2017, Morgan Stanley said in a note.
“Despite the myriad announcements of capex cuts, production has yet to respond enough to rebalance the market,” Morgan Stanley said.
Goldman Sachs in a note on Monday said volatility in the oil price, which is at its highest since the collapse of failed U.S. investment bank Lehman Brothers in 2008, could reach 100 percent as storage capacity comes under pressure.
ESF or FED intervention in oil anyone?