Oil prices had been climbing steadily for over a week, peaking at their highest level in four months when the Federal Reserve announced a third round of quantitative easing on September 14.
But today, the Energy Department announced that production was recovering from Hurricane Isaac, imports were flowing, and U.S. crude oil supplies had surged well beyond predictions.
Analysts estimated that last week’s crude inventories would rise by about 1 million barrels. Instead, they rose by 8.53 million barrels to 367.6 million barrels, with the highest level of imports since the start of the year combined with a rise in domestic output.
As a result, oil dropped to a six-week low.
Crude for October delivery on the Nymex dipped to $91.98, a decrease of $3.31. Brent crude on the London-based ICE Futures dropped $4.01 to settle at $108.02.
Crude oil imports also surged 15% last week to 9.85 million barrels per day, and production rose to 6.28 million barrels.
“This is a massive build in supplies,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “We were already moving lower because of the Saudi headlines and this number is adding to the bearish sentiment.”
The “Saudi headlines” he refers to are the reports that Saudi Arabia is attempting to reduce the price of crude. Unnamed officials said the nation was producing 10 million barrels per day and was prepared to pump more if the demand presented itself.
According to MarketWatch, there is speculation that the U.S. is working with Saudi officials to push prices down, though officials wouldn’t comment and only said they appreciated the Saudis “continued commitment to take all necessary steps to ensure the market is well supplied.”
But some analysts believe the high prices of last week just couldn’t hold.
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“The fundamentals aren’t supportive, said Mike Wittner, head of oil market research at Societe Generale SA in New York. “Prices were getting uplift over the last couple weeks from the EU and U.S. quantitative easing, the anti-Islamic video and maintenance in the North Sea. These three factors are no longer enough to prop up the market.”
Gasoline and distillate fuel inventories fell, though refinery operations rose to 88.9% operating rates from 84.7% the week before, continuing to come back on line after Hurricane Isaac.
That’s all for now,
Energy & Capital’s modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends.