HardAssetsInvestor

Written by Sumit Roy  |

May 25, 2011

Crude Oil Report: Crude Oil Rises, Despite Inventory Build

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Price action suggests that the crude oil market may have already discounted weak U.S. demand.

The U.S. Department of Energy reported this morning that in the week ending May 20, 2011, U.S. crude oil inventories increased by 0.6 million barrels, while gasoline inventories increased by 3.8 million barrels, distillate inventories decreased by 2 million barrels and total petroleum inventories increased by 6.8 million barrels.

Crude oil prices rallied after the report, with Brent nearing $115/barrel, while WTI briefly surpassed $101/barrel. But recent price action does not seem related to these inventory movements.

Instead, traders seem more focused on yesterday’s bullish forecasts from analysts at Goldman Sachs and Morgan Stanley. Both firms foresee Brent crude reaching $130-140/barrel next year, which is considerably higher than it trades currently; prices will rise, they argue, thanks to ongoing Libyan supply disruptions and still-strong demand growth in emerging markets.

Shifting back to the latest EIA report, last week’s large increase in total U.S. petroleum inventories sent the surplus versus the five-year average higher by about 5 million barrels to 19.1 million, or 1.8 percent.