By Barani Krishnan
Investing.com – Message to oil bulls: The analysts aren’t always wrong, as much as they aren’t perfect.
Also, the White House can still rattle the market, regardless of what it can achieve.
Oil prices sank their most in a week on Wednesday after the U.S. Energy Information Administration reported a crude build of 1.0 million barrels for last week, tripping up oil longs who had anticipated a large drawdown instead.
As of Tuesday noon, a consensus of oil market analysts tracked by Investing.com indicated that the EIA will likely report a 2.13-million barrel crude build for the week ended Nov 5. That was before industry group American Petroleum Institute reported a 2.49 million-barrel drawdown instead for crude — based on its own data.
Oil bulls, already pumped up with the rebound in crude prices from a selloff last week, plowed head-on into the market on the API data.
In the end, the EIA data proved the analysts to be right — at least directionally despite being off by 1 million barrels in their estimate for a build.
The EIA also reported that distillates inventories, which include diesel and heating oil, declined by 2.613 million barrels in the week against expectations for a draw of 1.133 million.Gasoline stockpiles declined by 1.555m barrels last week, the EIA said, compared with expectations for a draw of 1.193 million barrels.
But it was the crude build that stood out. The Cushing delivery for U.S. crude also showed a flat number after weeks of declines to three-year lows over the past month.
Another reason for the tumble in oil prices — inflation, as indicated by the Consumer Price Index, expanding at its fastest rate in more than 30 years with a 6.2% jump in the year to October, driven by, of all things, high energy prices.
The impact of soaring fuel prices on an economy emerging from the ravages of the coronavirus pandemic has not been missed by President Joe Biden, who vowed to strike back against what he described as “price gouging” in the energy sector. “Inflation hurts Americans’ pocketbooks, and reversing this trend is a top priority for me,” Biden said in a statement issued by the White House.
The combination spooked the market enough to drive oil prices down by about 3%, erasing much of the previous day’s 3.5% gain in U.S. crude.
West Texas Intermediate, the U.S. crude benchmark, was down $2.81, or 3.3%, at $$81.34 a barrel per barrel. WTI neared a seven-year high at 84.70 earlier on Wednesday before tumbling.
London-traded Brent crude, the global benchmark for oil, finished the session down $2.14, or 2.5%, at $82.64. Brent neared a three-year high of $86.70 earlier in the session.
It was the largest drop in a week for both WTI and Brent. “It seems unlikely crude prices can break above recent highs until energy traders see whatever action will come from the Biden administration,” said Ed Moya, analyst at online trading platform OANDA. He, however, added that the “oil market deficit is firmly in place and that should prevent WTI crude from seeing a significant pullback.”
That rhymed with the view of Vitol Group CEO, Russell Hardy who told a Reuters Energy Summit on Tuesday that oil demand had returned to pre-pandemic levels and demand in the first quarter of 2022 could exceed 2019 levels. Hardy also said $100 oil was still possible in the near term.