There is too much storage, not enough refining, the oil is falling sharply

Oil prices closed sharply lower on Wednesday, dragged down by a weekly report that showed an increase in inventories of crude and derivatives in the United States, due in part to weak activity at refineries.

The price of a barrel of Brent from the North Sea, due in April, which was the first day of using it as a reference contract, decreased by 3.06%, to close at $82.84.

As for the US West Texas Intermediate (WTI) barrel, delivered in March, it lost 3.11%, to $76.41.

Prices rose in early trading, and prices fell after the release of the US Energy Information Agency (EIA) report, which showed a sudden increase of 4.1 million barrels in strategic reserves, while analysts expected a drop of 1 million barrels.

The marked increase in crude reserves is largely due to the jump in imports (+23%) and the drop in exports (-26%).

The increase in imports is mainly due to the return to service, after a spill in Kansas, of the Keystone pipeline, which carries Canadian oil to the United States, according to Kpler’s Matt Smith.

Traders also noted that gasoline inventories rose by 2.6 million barrels, slightly more than expected (+2 million), and that distillate reserves, including diesel, also increased by 2.3 million barrels.

Robert Yawger of Mizuho commented that the report was “damaging to the courts, however much you read it”. “Crude oil inventories are at a 19-month high. As for refined products, they are close to disaster.”

The analyst points out that this increase in inventories occurred when refining capacities were limited throughout the month of January due to the repercussions of the passage of the winter storm Elliott at the end of December, and then the start of the usual maintenance operations at this time of the year.

The refinery utilization rate decreased last week to 85.7%, compared to 86.1% for the previous period.

“You would think that this would have led to a decrease in inventories,” but the opposite happened, which is an indication of weak demand, below its usual level at the beginning of the year, as Robert Yawger confirms.

The decision of the Organization of the Petroleum Exporting Countries (OPEC) and its allies in the OPEC + agreement, which decided on Wednesday to keep their production quotas unchanged, added to the gloom.

For Robert Yawger, the EIA numbers and the OPEC+ announcement prompted speculative operators, who had been betting heavily on the rise of black gold for weeks, to disengage, creating an air pocket.

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