Crude Falls After Surprise US Weekly Crude Buildup

May 22, 2019 Share Print 0

Oil prices dropped by more than 1 percent on Wednesday after the release of the weekly US crude inventory data. A surprise buildup of 4.7 million barrels of crude and 3.7 million barrels of gasoline pushed prices down. Middle East tensions and the ongoing OPEC+ crude output cut deal have kept prices in a higher range, but higher US production keeps putting downward pressure on prices.

Geopolitical, weather and operational factors have reduced crude supply levels. The OPEC+ agreement has been the major factor and with the upcoming June end of the deal there is uncertainty if an extension is coming.

Russia has sent mixed signals and the effectiveness of a production output cut would be limited if it does not rejoin the group. Saudi Arabia has carried a heavy load to soak up excess supply and will steward the group form committing the same mistakes that lead to a free fall in crude prices.

The US is impacting prices in three ways. Sanctions against Iran and Venezuela for political reasons have boosted prices as it reduced supply. US-China trade disputes have a negative effect on global growth forecast reducing energy demand going forward. The final factor has been the rising American output. While sanctions reduce supply and boost prices, lower energy demand and rising production depreciates crude as there is a higher risk of oversupply.

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.