After a two month rally, U.S. Crude Futures closed $1.66 lower, at $39.79 a barrel, the largest daily loss since February 11th. On Wednesday, the EIA (Energy Information Administration) reported U.S. crude inventory rose by 9.4 million barrels over the previous week to reach a total of 532.5 million barrels. With these reports three times over analyst expectations, the market seems to be worried that news of the US stockpile may reverse the recent upward trend.
Crude prices had rallied nearly 50 percent over the past six months from a 12 year low of roughly $27 a barrel. Though some of the recent rally was related to declining U.S. oil production and strong demand for gasoline, most attribute the majority of gains to OPEC and other major producer’s decision to freeze production at January’s levels.
The EIA’s report was not all bad news. They reported gasoline inventories dropped 4.6 million barrels compared to the 1.5 million drop forecast, and also reported demand for motor fuel has risen seven percent over the last four weeks.
What’s next… It depends on who you believe.
Tariq Zahir, fund manager at Tyche Capital Advisors stated, “The rally, in our opinion, has run its course…”
John Kilduff, the founding partner of Again Capital is saying don’t get used to $40, we’re headed back to $25 soon.
On the other hand Todd Gordon of Tradinganalysis.com is much more bullish on the rally saying, “We have a full-on commodity breakout here. The central bank is paving the way to higher commodity prices and a lower dollar in unison with the rest of the global central banks.” He believes we’ll be at $49 a barrel in the near future.
Regardless of which side of the fence you fall, today’s report from the EIA is keeping all eyes focused on crude oil stockpiles now that they’ve reached record highs for a sixth straight week.