Reports from the US Energy Information Administration (EIA) of a large increase in crude oil inventories in mid-February caused Brent crude prices to almost drop below $80 per barrel.
According to the IEA, there was an inventory build of some 7.6 million barrels. While this was less than the previous week’s build of over 16 million barrels, the markets largely ignored it because it was due more to an adjustment in the data rather than a physical increase in stored crude. US crude stocks are now above the five-year seasonal average at 479 million barrels.
Rising inventories and lower prices are generally not good news for US producers like ExxonMobil and Chevron, the makers of the Mobil and Texaco lubricant and grease products, but they at least have the prospect of purchases to refill the US Strategic Petroleum Reserve (SPR), which is currently at its lowest level since the 1980s. The US Administration’s announced its intention is to start refilling the SPR when WTI crude prices drop to around $70 per barrel in order to secure value for taxpayers.
Nevertheless, multiple factors are currently weighing on the oil markets, and despite expectations that the US Federal Reserve will follow through on its intention to continue raising interest rates, suggesting ongoing weaknesses in the US economy, oil prices regained most of their losses. A positive driver of oil prices at the moment is the expectation that China’s demand for oil this year will rebound by as much as a million barrels per day.