It sure hasn’t been a good two weeks for crude oil. After kissing the $52 level in mid to late October, the commodity has been in a practical free-fall for the last several days and is now barely hanging on to the $45 level. That works out to a 14% decline in two weeks. The culprit for today’s weakness was an extremely bearish inventory report from the Department of Energy (DoE). Even as traders were prepared for some upside to consensus forecasts after yesterday’s report from API showed the biggest build in stockpiles since March, they weren’t prepared for this.
According to the DoE, crude oil inventories increased by a whopping 14.42 million barrels compared to expectations for a decline of 532K barrels. As shown in the chart below, this week’s increase in stockpiles represents the largest one-week increase going back to at least 1983. Looking at the chart, it is interesting to note that just eight weeks ago we saw one of the largest weekly drawdowns in inventories going back to 1983, so if you net them out you could say its a wash.
Looking at where inventory levels stand now, while stockpiles were approaching their levels from this time last year, this week’s increase moved that convergence off course. From a longer-term perspective, though, stockpiles were and remain at extraordinarily above average levels. As shown in the bottom chart, inventories are currently more than 177 million (49%) above their historical average going back to 1983.