The weekly inventory report from the Department of Energy this morning showed a larger than expected drawdown in crude oil stockpiles. While traders were expecting inventories to actually rise by 500K barrels, they actually declined by more than ten times that at 5.085 million barrels. This was the second time in three weeks that inventories declined by more than 5 million barrels. Even with this week’s decline, though, the song remains the same for crude oil supplies and they remain ridiculously high relative to average. At a current level of 482 million barrels, current inventories are nearly 160 million barrels above average and enter 2016 at a higher level to start a year than any other year since at least 1983.
With crude oil stockpiles falling considerably more than expected, increased tensions in the middle-east and now North Korea claiming they successfully detonated a hydrogen bomb, one would think this is a dream backdrop for crude oil prices to rise. As we are all well aware, though, the reality is the complete opposite. Just this afternoon, crude oil prices gave up the $34 level and traded down to their lowest level since February 2009 and are now less than $2 from taking out the credit crisis low of $32.40 in December 2008.