HardAssetsInvestor

Written by Sumit Roy  |

August 01, 2012

Oil Rises As Inventories Plunge, Iran Output Hits Lowest Since 1990

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Falling oil inventories could be signaling the crude oil market has begun to tighten.

The Department of Energy reported this morning that in the week ending July 27, U.S. crude oil inventories decreased by 6.5 million barrels, gasoline inventories decreased by 2.2 million barrels, distillate inventories decreased by 1 million barrels and total petroleum inventories decreased by 7.2 million barrels.

Crude oil prices rose after the latest Weekly Petroleum Status report from the EIA. The inventory figures were bullish across the board, as crude, gasoline, distillate and total petroleum inventories all fell.

Could this be the first indication of a tightening oil market?

Last week, we wrote that as it stood at the time, global supply exceeded global demand by close to 1 mmbbl/d. We said that the market would naturally tighten over the next year as emerging market demand growth absorbed all the excess barrels on the market.

However, we also said that production cutbacks by OPEC or a sudden surge in demand could tighten the market faster than expected. The latest data measuring the cartel’s output suggests the former could be taking place.

Total OPEC production in July fell by 400 Kbbl/d to 31.2 mmbbl/d.