U.S. crude inventories rose by 6.47 million barrels for the week ending January 27, spurred by both a jump in U.S. imports from Canada and a decline in U.S. refinery runs.
The larger-than expected inventory build in the States raises concerns that OPEC oil supply cuts may not be sufficient to reduce the oil glut and could stall the oil price recovery.
Imports from Canada were the highest ever reported, contributing to the large week-on-week increase into PADD 2, according to an analysis of EIA inventories data by Anthony Starkey, manager of energy analysis with Platts Analytics.
Starkey notes that U.S. production since September has also increased on the back of recovering offshore output and seasonal increases in Alaskan volumes.
And there is more U.S. oil supply growth on the horizon.
“We have yet to really see the improvement in shale output that the recent rise in rigs has been portending should occur sometime in the first half of this year,” Starkey said in a statement.
Conversely, some factors support a levelling of U.S. crude inventories going forward. Starkey noted that current inventories still reflect much higher OPEC output levels than they currently are.
For example, on a four-week moving average basis, imports of Saudi Arabian crude into the U.S. are at one of the highest levels in the past two years, he said.
Saudi volumes are “likely to wane” in the weeks ahead, especially since early reports indicate a high level of OPEC compliance to their proposed supply cuts.
Also, a U.S. crude inventory build at this time of year is typical due to seasonal factors.
“In sum, with each passing day, the market nears a precipice,” Starkey said. “With each passing day, we move further away from discounting OPEC cuts, and closer towards discounting the return of OPEC supply. The window of opportunity for a significant move higher in oil prices in the near term continues to narrow, but is not completely closed as of yet.”