The oil price rose on Wednesday, despite the record level of industrial oil reserves in the US last week.
The North Sea barrel from Brent for the August delivery ended at $41.73 in London, up by 1.3% from Tuesday’s close.
In New York, meanwhile, barrels from West Texas Intermediate (WTI) for the July delivery gained 1.7% at $39.60, a three-month high.
The increase in US crude oil reserves to a record level was a surprise to the market amid the gradual recovery of the US economy.
Crude reserves rose 5.7 million barrels (MB) to 538.1 MB as of June 5, according to a report released on Wednesday by the US Energy Information Agency (EIA). Analysts anticipated a decline of around 1.85 MB.
The last record for US crude oil reserves, produced at the end of March 2017, reached 535.5 MB.
Matt Smith, an analyst at ClipperData, stated that crude stocks rose, and the flow of the refineries was limited by weak demand and a small margin between the prices of crude oil and oil products.
Although refineries slightly accelerated their processing pace, the pace remains rather weak. They reached 73.1% of capacity compared to 71.8% last week.
Smith added that the rise in imports and the fall in exports also contributed to the increase in industrial crude oil reserves.
Crude oil imports coming from the United States went from 6.2 MB per day (MBD) to 6.8 MBD, while exports fell from 2.8 MBD to 2.4 MBD.
The reserves for oil increased by 900,000 barrels, while analysts expected a drop of 1 million barrels.
The demand for oil has improved, but it remains weak
Distilled products, such as heating oil or jet fuel, rose by 1.6 MB when the market expected a 3.5 MB increase.
Compared to the previous weeks, the demand for energy in the United States has increased. The average consumption of oil totaled 16.3 MBD in the last four weeks. Yet it is still 20.1% lower than the same period in 2019.
Meanwhile, production continued to drop to 11.1 MBD, its lowest level since September 2018. Oil reached its highest level of production in mid-March, with 13.1 MBD.
The fall in consumption due to the coronavirus pandemic and the measures adopted to combat it pushed US producers to reduce their extraction activities.
Bart Melek of TD Securities stated that the EIA data is not too good. Still, it is not as bad as the API predictions on Tuesday night.
The American Petroleum Institute estimated that crude oil reserves in the United States had risen by about eight million barrels.
Besides, in the Cushing terminal (southern Oklahoma), crude reserves fell by 2.3 MB to 49.4 MB, according to the EIA.
OPEC and allies agreed on the extension of production cuts
Oil prices had already risen on Tuesday. The market was still evaluating the consequences of an agreement between major oil exporters to extend production cuts.
Members of OPEC and its allies, including Russia, agreed on Saturday to extend the cut in production until July.
With this agreement, they will continue to withdraw some 9.6 million barrels per day of production in search of sustaining prices.
Additionally, Saudi Arabia and other countries will withdraw extra voluntary cuts to the deal in July.
