U.S. crude oil storage build not enough to spoil price rally

Dec. 14 (UPI) -- Crude oil prices on Wednesday were on the rise after a U.S. report showed a major build in domestic crude oil inventories, but a tacit decline in consumer-level demand.

The Energy Information Administration, the statistics office for the Energy Department, reported that total domestic inventories of crude oil, not counting what's in the Strategic Petroleum Reserve, increased by 10.2 million barrels during the week ending Friday.

That increase came despite an outage on the Keystone oil pipeline that was triggered by an oil spill near the border of Kansas and Nebraska last week. A surge in inventories would normally be indicative of lackluster demand in the U.S. economy, though data show storage levels are still about 6% below the five-year average for this time of year, so supplies are still tight.

Gasoline inventories, meanwhile, increased, though those too are about 3% below the five-year average. Levels of distillates, a refined product category that includes diesel, increased as well, but remain about 8% below the five-year average.

Crude oil prices were in rally mode for most of the day. West Texas Intermediate, the U.S. benchmark for the price of oil, was up 2% as of 11:15 a.m. EST Wednesday to trade at $77.47 per barrel.

Much of the rally, however, may be carry over from the latest reading on consumer-level inflation in the world's largest economy.

The Consumer Price Index for all items increased by 0.1% in November, compared with a 0.4% rise the previous month. Year-on-year and consumer-level inflation increased by 7.1%, down from 7.7% in October and below the 9.1% peak from June.

Much of the relief came as a result of the decline in commodity prices. Though rallying for much of the week, WTI is down about 10% since the start of November. Retail gasoline prices, meanwhile, are down from month-ago levels of $3.77 per gallon to $3.21 per gallon and are well on their way to a $3 average before the end of the year.

Consumer-level demand, meanwhile, is not following the trends in commodity prices. EIA data show the total volume of refined petroleum products supplied to the market, a proxy for demand, averaged 19.8 million barrels per day, down by 6.9% from the same period last year.

Compared with the similar week in 2019, before the pandemic, and total products supplied came in at 20.4 million bpd, suggesting confidence in the economy might not be as strong as recent data would suggest.

EIA in its monthly market report for December found global crude oil inventories will likely be higher at the end of 2023 than they are now, leading it to lower its overall forecast for the price of oil by around $3 per barrel for next year.