Crude oil prices are down on Wednesday after the surprising increase in US inventories and delay in China’s industrial output growth. Meanwhile, commodity prices continue to be supported by the growing tensions in the Middle East.
Futures on US crude oil WTI depreciated by 0.73% to 61.33 USD per barrel for contracts with delivery in June. The Brent variety reported a price drop of 0.35% to 70.99 USD per barrel.
The American Petroleum Institute (API) reported that US crude oil inventories unexpectedly rose last week by 8.6 million barrels, against expectation for a decline of 0.8 million barrels. This, seriously keeps the prices under pressure, despite the continuing decline in OPEC oil production and tightening of the market. If the EIA report confirms a strong build we could see that weigh on oil prices, but too many geopolitical risks remain that should keep prices supported.
However, the support of oil prices comes in the direction of tensions in the Middle East. Oil prices have drawn support after Saudi Arabia on Tuesday said armed drones struck two of its oil pumping stations, two days after the sabotage of oil tankers near the United Arab Emirates, while the U.S. military said it was braced for “possibly imminent threats to US forces in Iraq” from Iran-backed forces. The attacks took place against a backdrop of U.S.-Iranian tension following Washington’s decision this month to try to cut Iran’s oil exports to zero and to beef up its military presence in the Gulf in response to what it said were Iranian threats.
Tensions rose as the US tightened sanctions against Iran since early May.
Meanwhile, the Organization of Petroleum Exporting Countries (OPEC) said on Tuesday that global demand for oil would be higher than expected this year as supply growth from competitors, including US shale oil producers, slow down. This signals a further tightening of the market if the cartel abstains from increasing production.
China’s industrial output growth slowed to 5.4% in April, which is more than expected, confirming the view that Beijing will have to introduce more incentives as the trade war with the United States is booming.
US crude oil inventories
The US crude oil inventories unexpectedly rose last week, according to the data of the American Petroleum Institute (API). Moreover, gasoline and distillate stockpiles also reported growth.
In the week ending May 10, crude oil inventories grew by 8.6 million barrels to 477.8 million barrels, compared with analysts’ expectations for a decline by 0.8 million barrels. This is also higher than the previous week’s crude oil inventories of 2.81 million barrels.
In Cushing, Oklahoma, oil stockpiles grew by 2.1 million barrels.
The Energy Information Administration will announce official data later today.
Global energy investment
Global energy investment stabilized at just over 1.8 trillion USD in 2018, ending three years of declines.
Higher spending on oil, natural gas and coal was offset by declines in fossil fuel-based electricity generation and even a dip in renewable energy spending. China was the largest market for energy investment, even as the US closed the gap.
After the 2014-2016 oil market bust, spending on oil and gas plunged, and only started to pick up last year. But the oil industry is not returning to its old spending ways. New investment is increasingly concentrated in short-cycle projects, namely, US shale, “partly reflecting investor preferences for better managing capital at risk amid uncertainties over the future direction of the energy system”, according to the IEA.
Upstream spending rose by a modest 4%, which only partially repairs the savage cuts following the 2014 bust, which saw upstream spending fall by about 30%. However, the IEA said that 2019 could be a bit of a turning point, with a “new wave of conventional projects” in the works.
“Despite the increase in spending on new oil projects, today’s investment trends are misaligned with where the world appears to be heading”, said the EIA report. “Notably, approvals of new conventional oil and gas projects fall short of what would be needed to meet continued robust demand growth”, adds the statement.
It’s entirely conceivable that by 2030, clean energy accounts for 65 percent of total energy investment, up from 35 percent today, although it will require a “step-change in policy focus, new financing solutions at the consumer and bulk power levels and faster technological progress”, adds the IEA.