The oil price rose on Wednesday and is now back above $35 a barrel, even despite another huge build in US crude stockpiles last week that suggests the global supply glut is only getting worse.
Latest data from the US Energy Information Administration revealed another 7.8 million barrels had been added to domestic reserves last week, said the Wall Street Journal. This was a far bigger gain than had been expected by analysts and boosted US stockpiles to 503 million barrels.
This is the biggest total recorded in the weekly data since records began in 1982, while in monthly data, which "don't line up exactly" with the weekly numbers, the 500 million barrel barrier has not been breached since 1930. The US – and the world – is still swimming in oil and production remains at least one million barrels a day above demand.
So why did the price of international benchmark Brent crude jump more than seven per cent and end two days of decline?
In relation to the data, it is refinery maintenance season in the US and so growth in reserves was expected, even if the actual number was on the high side. "Even though [the crude inventory build] was a shocking number, I think a lot of people… knew a big build was coming," said Phil Flynn, an analyst at Price Futures Group.
Then there was the forecast in the report for the hitherto resistant domestic shale oil supply to finally begin to show a more sizeable decline this year, reports The Times, by 620,000. This would more than offset the half a million barrels Iran is expected to add to the market and would start to rebalance excess supply.
Away from the EIA figures, the dollar slumped yesterday after weak data on the US services sector pushed back expectations of when the Federal Reserve will again raise interest rates. A weaker dollar makes oil cheaper for overseas consumers in big markets such as China, which is seen as positive for demand.
Finally – and arguably most importantly – the market continues to trade oil up on hopes of a deal among oil-producing nations to cut exports from their multi-year highs. Last night, there were reports that several members of Opec and Russia, the key non-Opec oil power, are set to meet to discuss coordinated action.
The fly in the ointment that could yet undermine the current rally is that Saudi Arabia, the largest producer within and de facto leader of Opec, is not expected to be at the table. This would undermine the effectiveness of any agreement and could yet turn sentiment negative again.