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U.S. Energy Information Administration/Jacob Sweeney-Samuelson, Medill

After reaching record highs last week, crude oil inventories retreated, though they are still higher than average for this time of year.

Crude inventories drop from record levels

by Jacob Sweeney-Samuelson
Jun 5, 2013

U.S. commercial crude inventories dropped by an unexpectedly sharp 6.3 million barrels, or 1.6 percent, in the week ended May 31, according to a report released by the U.S. Energy Information Administration, indicating a retreat from last week’s levels, which were the highest recorded since these records began in 1978.

The government report was in line with the larger than-expected drop in supplies of 7.79 million barrels reported Tuesday by the private American Petroleum Institute.

Stocks of crude, excluding those in the U.S. Strategic Petroleum Reserve, ended the week at 391.3 million barrels, still higher than average for this time of year and 1.7 percent higher than the year-ago week. This is down from the prior week when supplies had climbed to the new record level of 397.6 million barrels.

Analysts had expected a drop of only 400,000 barrels, according to a survey by Dow Jones Newswires.

Despite this week’s relief from the peak inventory levels, some economists focused on the longer-term pattern of elevated crude supplies.

“The inventory buildup," said Bernard Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University, "is a reflection of several things: the huge increase in production while domestic consumption is flat to declining, and a limited ability to export crude in the short term. And of course the seasonality of the market.”

Still, Weinstein indicated that the latest drop could be a sign of an increase of demand at the beginning of the “driving season” from Memorial Day to Labor Day, noting that a buildup in inventories in late spring is typical.

“This year should be better than last year,” Weinstein asserted. “The unemployment rate is falling; people are generally feeling a little better about the economy. I think there will be a modest pickup in demand. But remember that every year average fuel economy increases, so consumption could fall.”

Gasoline inventories fell modestly, less than a quarter of 1 percent, to 218.8 million barrels from 219.2 million barrels the prior week. Distillate fuel supplies increased 2.2 percent from the week before to 123.3 million barrels, but remained in the lower half of their average range.

West Texas Intermediate crude for July delivery gained as much as 1 percent in NYMEX trading in response to the inventory reports.

Investment analyst David Breuhan of Gregory J. Schwartz and Co. remarked that speculators might continue to drive up the price of crude based on this positive report.

“They may push it up a little,” Breuhan said. “Any time you see supplies drop and demand hold steady, you will see that reaction.”

But Breuhan offered a warning to consumers as well: “Just because crude oil may get cheaper, it doesn’t mean gasoline will be cheaper, especially with the coming driving season.”