HOUSTON — Oil traders shrugged off the rising tide of oil in U.S. storage tanks Thursday and sent prices higher on hopes that falling U.S. production might ease the glut.
The U.S. Energy Information Administration said the total amount of oil in U.S. storage tanks rose by 2.6 million barrels to 458.0 million barrels in the week ending Sept. 4. Analysts had expected to see a gain of just under 1 million barrels, according to an average of 11 estimates compiled by Bloomberg.
The gain in inventories wasn’t enough to derail a rally in oil prices that began shortly before the storage report. Benchmark U.S. oil prices ended the day’s trading up about $1.77 or 4 percent to $45.92 per barrel in early New York Mercantile Exchange trading.
“The one thing that stands out to me is the continued decline in domestic production,” said Andy Lipow, an oil analyst at Houston consulting firm Lipow Oil Associates LLC. “The market is focusing on the fact that we’re seeing the effect of the declining ring counts in the production figures.”
On Wednesday, the EIA said in a separate report that U.S. crude output fell by 140,000 barrels a day in August compared to July. The group also cut both its full-year 2015 and 2016 daily production forecasts by 100,000 barrels to 9.2 million barrels and 8.8 million barrels respectively.
The boost that declining U.S. production gives oil prices is expected to be offset in the fall by reduced crude oil demand from refineries. The massive complexes usually run at a slower clip during the season as they make repairs and upgrades to their infrastructure.
A portion of the refinery slowdown has already begun happening.
U.S. refineries processed about 16.1 million barrels of oil per day last week, down about 279,000 barrels per day from last week. Total use fell to 90.9 percent, down 1.9 percent from last week and from recent highs of more than 95 percent. Nationwide refinery use can fall as low as 83-85 percent during maintenance season, Lipow said.