US crude oil supplies are declining. The government reported on Wednesday that supplies have declined for the fourth week in a row. However, the decline is still lower than what analysts expected. As the demand for oil remains low, US crude oil supply had to decline amidst rising stock of unsupplied gasoline. OPEC is continuing to reduce its exports, with far lower numbers in April. However, as inventories are growing and demand refuses to pick up, 10 percent sell off was noted in WTI prices.
Why More Oil Supplies for U.S.?
After three weeks of declining producing, domestic crude oil supplies for week ending April 28 went down by 900,000 barrels. The analysts were expecting bigger declines. S&P Global Platts analyst poll suggested 2.23 million barrels decline. On the other hand, the American Petroleum Institute issued a much broader outline of 4.2-million-barrel decline. The numbers projected by the US Energy Information Administration shows that domestic crude production (weekly) rose to 9.2393 million barrels per day. This shows a rise of 28,000 barrels per day. Moreover, domestic production has been high for 11 straight weeks now.
Some analysts are skeptical about the moderate decline in the last week of April. A senior market analyst, Phil Flynn of the Price Futures Group said that commercial inventories have come down. He suggested that a 1.5 million barrels release by SPR is responsible for the moderate decline. If that number is excluded, the inventories should have gone down by at least 2.4 million barrels.
Markets Remain Nervous
Oil traded weak on Thursday following the announcement. The numbers are moving towards March lows. The WTI crude stopped at $47.68 per barrel while Brent crude reached $50.64 per barrel. Note that Brent was weak before the numbers was announced. It hit the lowest in April at $50.14. WTI has also been hovering around monthly lows of $47.30. The markets are anxious about the state of oil globally.
US production is increasing while the OPEC and other oil producing nations will meet again to extend the Vienna agreement. As uncertainty around the event builds up, markets will become more nervous as May unfolds. The oil cartel will meet in June to decide if they wish to continue the sanctions on oil production. Saudi Arabia has already hinted that an extension is likely. Meanwhile, compliance to the agreement is also a matter of concern. The compliance declined to 90 percent in April from 92 percent in March. Saudi Arabia has made the largest cuts in the OPEC offsetting the lack of compliance in other countries. Russia has been the biggest compiler of the sanctions outside OPEC.
As US stockpiles and production are rising, there should be a strong growth in demand to offset another bearish trend in the markets.