The U.S. Energy Information Administration (EIA) reported on Wednesday that U.S. crude-oil stockpiles rose by 14.4 million barrels for the week ended October 28, marking the largest weekly increase in the 34 years that the EIA has been recording data. The growing supply glut was mostly driven by strong imports, partially attributable to delayed shipments from the hurricanes and tropical storms last month. U.S. crude oil imports averaged 9 million barrels a day for the week, up 2 million from the prior week. The EIA report suggests that the global oil glut is not going away any time soon.
In an effort to combat this oversupply of oil, OPEC agreed to cut production by 200,000 to 700,000 in late September. However, the group did not fully specify how the costs would be distributed. The accord is intended to be ratified with more specifics at the November 30 meeting in Vienna, but new developments may cast doubts on an agreement.
Libya and Nigeria, which were given exemptions from cutting production in order to recover from internal disorder and sabotage, expanded production by a combined 19 percent in October. Additionally, Iran was given an exemption from OPEC following the removal of international sanctions against it. In total, Libya, Nigeria, and Iran produced an extra 450,000 barrels. Despite cuts from other OPEC states, such as Saudi Arabia, the increased production from these exempt nations pushed OPEC production to a record 34.02 million barrels a day, according to a Bloomberg survey. Now, Iraq is also demanding exemption. In order to accommodate for these exemptions, other members will have to cut production even more, jeopardizing the chances of an accord being reached later this month.
The EIA report represents an expansion of a two year trend in the industry. Decreased foreign demand for energy, along with greater supply from fracking and new technologies have yielded a significant glut and low prices. Though there has been a great deal of volatility in the market, the prices are highly unlikely to reach the highs of a few years ago anytime soon. This newest report has helped push crude oil below $45 per barrel. This may be bad news for producers, but these low prices at the pump represent a huge boon for consumers.
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