Massive Inventory Build Pushes Oil Prices Down

Crude oil prices experienced a slight decline on Thursday following the Energy Information Administration’s (EIA) report of a substantial inventory build of 10.2 million barrels during the week ending October 6. This significant change contrasted with the 2.2 million-barrel draw from the previous week, which had not impacted prices as expected. The reason for this was the EIA’s concurrent estimate of a notable increase in gasoline inventories, causing concerns about the state of demand.

During the first week of October, the EIA reported a 1.3 million-barrel decrease in gasoline inventories, compared to the previous week’s 6.5 million-barrel build. Gasoline production for the week averaged 9.7 million barrels per day, up from the previous week’s 8.8 million barrels per day.

Regarding middle distillates, the EIA reported an inventory draw of 1.8 million barrels for the week ending October 6, compared to the 1.3 million-barrel draw from the previous week. Middle distillate production remained largely unchanged at an average of 4.7 million barrels per day.

Despite oil prices experiencing fluctuations throughout the week, they saw a decline on Thursday following the American Petroleum Institute’s (API) report of an estimated crude inventory build of almost 13 million barrels during the week ending October 6. This substantial inventory increase led to a drop in prices, despite the war premium added due to recent events in the Middle East.

In a note regarding this premium, ING analysts mentioned that if the conflict remains limited to Israel and Palestine, the war premium would gradually diminish. However, if Iran becomes involved, the U.S. response in the form of sanctions could contribute to a tighter supply situation next year.

As for the significant build reported by the API, it may result from refineries entering seasonal maintenance, making it a temporary issue. Conversely, JP Morgan analysts expressed concerns about fuel prices starting to impact demand negatively, indicating potential stronger bearish pressures ahead.

The analysts stated, “Fuel prices may be closer to consumers’ pain threshold than inflation-adjusted prices might suggest. There are already signs that consumers have responded by cutting back on fuel consumption.”

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