Oil futures lost more ground on Wednesday after the U.S. Energy Information Administration reported a 10.4 million-barrel climb in crude-oil supplies for the week ended Feb. 26. That was above the 9.9 million-barrel increase reported by the American Petroleum Institute, and more than four times higher than the rise of 2.5 million barrels expected by analysts polled by Platts. Gasoline supplies fell by 1.5 million barrels, while distillate stockpiles climbed by 2.9 million barrels last week, according to the EIA. April crude CLJ6 was at $33.90 a barrel on the New York Mercantile Exchange, down 50 cents, or 1.5%. Prices traded at $34.30 a barrel before the data.
U.S. oil production has tapered gradually from a peak last year, but many shale producers remain resilient despite falling revenue as they have increased their efficiency. Production has hovered around 9.1 million barrels a day in recent weeks, down from 9.7 million in April last year.
Oil prices have been supported in recent weeks by hopes that major suppliers would curtail their output in a bid to raise prices. Prices rose to a two-month high Tuesday after Russia’s energy minister said a “critical mass” of oil-producing countries—which together produce around 73% of the world’s oil—had agreed to hold output at January’s levels. Even though those Cartels are working together on frizzing the out to January level, inventories will keep accumulating until the end of 2017, the International Energy Agency forecasts, and clearing the glut could take years. Between late 2014, when developed-world stockpiles were at about average levels, and the end of this year, global inventories will have swelled by about 1.1 billion barrels, IEA data shows. Another 37 million will be added in 2017. Taking the agency’s projections for how quickly inventories will then fall, and estimates from Energy Aspects Ltd. that 290 million barrels will flow into China’s strategic reserves, it will take until 2021 to clear what’s accumulated
The time it will take to use up what’s sitting in tanks around the world adds to Goldman Sachs’s confidence in its prediction, by now an oil-industry mantra, that prices will stay “lower for longer.”
“The market will have a hard time trading higher once supply and demand shift into a deficit as the inventory overhang will likely act as a drag until stock levels are normalized,” said Jeff Currie, head of commodities research at Goldman Sachs in New York.