Oil edged higher on Wednesday as OPEC said it was committed to eroding a global surplus of crude, but increasing shale production in the United States and still-high global stocks threatened to pull prices lower.
While the energy markets are focused on crude and crude alone, the total U.S. petroleum stocks have been tightening more significantly. The Energy Information Administration reported that the total commercial petroleum stocks fell 4.7 million barrels compared to a 6.9 million barrel increase a year ago.
Rising geo-political tensions and a tightening global supply outlook is supporting crude oil. The strength comes even as the dollar is higher, being supported by risk aversion. Syria and North Korea concerns and terror attacks on innocent Coptic Christians in Egypt is raising concerns of conflict that could impact oil supply.
The crude oil glut does not help gasoline supply. Gasoline prices hit the highest price since last January as supply continues to fall and demand continues to rise. While traders are fixated on the so-called glut of oil supply and the resumption of Libya’s largest oil field, the global surplus is tightening.
RBOB gas futures were rip roaring, driving ethanol and crude along with it after the Energy Information Administration(EIA) reported a 3.7 million barrel drop in crude oil supply and another surge higher in refinery runs operating at 89.3%. Crude supply did hit another record, but I am no longer a lone voice in the wilderness raising concerns about a coming crude supply crunch. The myth that shale can replace the loss of more traditional projects is dangerous even as the trade is intoxicated with the real terms record supply.
Crude oil is rising on peak oil concerns. OK, not the old failed ideology of “peak oil” but the fact that U.S. oil supply in the U.S. may have peaked as well as Exxon Mobil’s proven reserve. The American Petroleum Institute in its weekly report said we had the first crude oil drawdown of the year and the biggest draw in Cushing, Olka., since April of last year.
The crude oil market is wondering why the Strategic Petroleum Reserve numbers remained unchanged even as the Department of Energy announced that it had already sold over 6.0 million barrels of oil to a private concern, and they announced another sale of 10 million more barrels of oil by the end of this month. We know there is mandatory reporting of inventory shifts by the oil companies but is the SPR on the same reporting schedule.
Crude oil price reversed course after a mixed Energy Information Administration supply report. There were also comments that Saudi Arabia is going full out and will immediately implement its 486,000 barrel a day production cut to show they are serious about compliance and to inspire other producers to do the same.