API Reports Higher Than Expected Inventory Build for Crude

The most recent data release from the American Petroleum Institute (API) reported a build of 2.7 million barrels in crude inventory in spite of the expectation for a smaller build in the latest data. This was on the trail of the previous 7.6 million barrel slump recorded in the previous week.

Experts had estimate that the build in crude oil would be around 2 million for this week—but 2.7 million exceeded even this pessimistic figure, and the already unsteady markets appear rattled. The large build report caused a notable weakness in West Texas Intermediate prices, which were trading down 1.46% at $50.05 after the data was released, with Brent down 1.26% at $51.75.

This build will either be confirmed or denied by the U.S. Energy Information Administration (EIA) report to be released tomorrow—a day later than normally scheduled due to this week’s holiday schedule.

Before the latest release, the API data had revealed a significant slump in crude inventory in comparison to the previous 3 weeks, with a draw of 1.35 million barrels in Cushing as distillate recorded a significant drop of 4.5 million barrels. The data for gasoline also reflected a build with a growth of 0.7 million barrels, this is its second straight week of a 0.7 million barrel increase. However, the downside remains cushioned amid a jump in the Chinese crude imports data, as reflected by China customs today. China's crude import rose 18% from a year earlier to 33.06 million tonnes in September, hitting a record daily rate of 8.04 million barrels per day (bpd).

The data is expected to have an overall negative impact on the sentiment for crude, and the impact would be further sustained if the build persist over the coming few weeks. Oil prices suffered an overall defensive outlook on Tuesday as it moved further away from the 4 month highs seen earlier this week. The pressure for crude prices to fall lower was mostly mounted by the growing strength of the USD after the OPEC meetings in Istanbul failed to provide a sense of bullish momentum for the price of the commodity.

WTI traded around $50.30 ahead of the data with a spike lower to just above $50.00 p/b on release, with prices able to find some significant support on approach. The latest Energy Information Administration (EIA) data will be watched closely on Thursday with high volatility seen on the EIA data in recent weeks. The US production data will be watched closely, especially with the gradual build in US drilling rigs, increasing speculation that shale production could stabilize this quarter. Markets will be expecting a significant headline build in the data.