By Barani Krishnan
Investing.com - U.S. crude oil inventories surged nine times more than expected last week, adding a huge increase to a recent streak of builds, as a drop in refining activity, rise in imports and record high domestic production all came together to overwhelm traders.
Crude stockpiles rose by 9.9 million barrels in the week to April 26, versus forecasts for a build of 1.5 million, the U.S. Energy Information Administration said in its regular weekly report.
There were surprises on the gasoline and distillates side of the data as well.
The EIA said gasoline inventories rose by 0.9 million barrels, compared to expectations for a draw of 1 million barrels. Distillate stockpiles dropped by 1.3 million barrels, compared to forecasts for a decline of 193,000 barrels.
U.S. crude production, meanwhile, rose by 100,000 barrels, to a record high of 12.3 million barrels per day.
Unsurprisingly, oil prices fell on the news. But the drop was modest given the sheer size of the crude build, suggesting that traders seemed unsure of where the market was heading near term.
West Texas Intermediate futures, the benchmark for U.S. crude, settled down 31 cents, or 0.5%, at $63.60 per barrel. London Brent futures, the global benchmark for oil, was down 11 cents, or 0.1%, to $72.17 by 2:45 PM ET (18:45 GMT).
Just a week ago, crude prices appeared destined to go only higher with U.S. sanctions on Iranian and Venezuelan oil and unplanned outages in Libya and Angola all coming together to bear maximum upward pressure on a market that rose 32% in the first quarter.
But since this week began, even with fighting breaking out on the streets of Caracas between the forces of Venezuelan President Nicholas Maduro and his challenger Juan Guaido, oil has been unable to rally. In Tuesday's trade, prices rose no more than 0.5% on the day, ending April trade up 6%.
Wednesday's crude build reported by the EIA will likely stop the rally in its tracks for now, traders said.
"It was quite a surprise to have a nine times bigger build in crude than expected, along with a build in gasoline where a draw was expected," said Tariq Zahir, managing member at the oil-focused New York fund Tyche Capital Advisors. "These numbers should continue to put pressure on crude prices in the short term."
John Kilduff, founding partner at New York energy hedge fund Again Capital, agreed.
"The small rise in gasoline inventories was also a bearish factor, as the increase came in the face of continued strong, summer-like demand and a slight decline in refinery utilization rates," Kilduff said.
The EIA said refineries operated at 89.2% of their operable capacity last week, versus last week's 90.1%. Refiners have been cutting back on activity either due to maintenance or reduced profit margins lately in processing crude.
"A drop in refining activity and a rise in imports helped propel crude inventories to another large build," said Matt Smith at New York-based crude cargoes tracker Clipperdata.
"The vast majority of the build was on the US Gulf Coast, with waterborne imports on the rise," said Smith, noting that crude inventories were up nearly 30 million barrels in the last five weeks, with a 500,000-barrel release from the government's Strategic Petroleum Reserve adding to the mix.