Oil prices rebound on big drop in gasoline stockpiles

“The market just doesn’t see the glut cleaning up”, said Andy Lipow, an oil analyst at Lipow Oil Associates in Houston.

Oil prices have fallen by 20% in the past two months as refineries produce more gasoline and other petroleum products but they have failed to make a dent in reducing excess supply of crude, Bloomberg reports. On Tuesday, it settled below $40 a barrel for the first time since April.

After a much-needed bullish run to start the summer, it appears that the upward momentum of oil prices has completely reversed. However, the bullish component of the data was the fact that gasoline inventories dropped by 3.3 million barrels, versus forecasts for a fall of 300,000 barrels. “But an unexpected, greater-than-1-million barrel build to crude stocks despite refinery utilization ticking higher by 0.9 per cent should be cause for concern”.

USA crude inventories rose for a second week in a row, gaining 1.4 million barrels last week, compared with analysts’ expectations for a decrease of 1.4 million barrels, Energy Information Administration (EIA) data showed.

Prices had already hit three-month lows last week after USA data showed an unexpected increase in commercial stockpiles of oil and gasoline, adding to worries about a global crude supply glut.

U.S. West Texas intermediate (WTI) crude fell $1.35, or 3.3 percent, to $40.25 a barrel by 11:33 a.m. EDT (1533 GMT). This is mainly due to increased production at Luhais field operated by Iraqi owned South Oil Company which saw an increase of 10,000 bpd, to 90,000 bpd. Yet again, this official data was in stark contrast with API estimates released yesterday.

Oil prices steadied last Friday after touching three-month lows during a week-long selloff fuelled by a persistent global supply glut, bringing the monthly decline to about 15 per cent, the biggest monthly loss in a year for USA crude. Also weighing on oil prices was data that revealed the USA oil rig count had climbed by 44 rigs in July, the highest monthly increase in over two years.

The market sentiment is very negative and any data which shows a larger than expected drawdown, both in the crude oil and gasoline stocks will likely lead to a bout of short covering from the current levels.

Conversely, a crude drawdown would signal that refiners are still producing at elevated levels and the inventory overhang in oil products is set to continue.