Oil Decline Continues As Traders Pay Little Attention to EIA Inventory and OPEC Meeting

Traders sent crude oil tumbling today paying little attention to a lower than expected EIA inventory report. Just a day ago oil rallied after news that OPEC had scheduled their annual meeting two months early and that there was a possibility that Saudi Arabia would call for a cut in production. Oil is down 0.77% cents for the day at 41.38 and Brent fell 0.61% to 43.81 with both benchmarks looking to continue to fall back to recent lows. After hitting a low of $26 a barrel in January, crude oil topped $52 a barrel in early June, only to drop below $40 a barrel last week. The recent rise back above $40 is a fake out by speculators playing the pump and dump game, according to oil analyst. The recent bounce forced massive short covering by traders convinced oil was headed back down to the $20s and had nothing to do with the fundamentals.

The fundamentals are bearish for oil and gasoline prices, and not likely to change any time soon. Even the Energy Information Administration, the government’s agency in charge of predicting the future, has been forced to revise downward its estimates of the price of oil and gas for the rest of the year and into 2017. The report from the EIA on July 29 showed crude oil inventories at 522.5 million barrels, “historically high levels for this time of year.” This despite the fact, as our analyst noted, “We’re in the midst of the strongest demand season ever. Gasoline demand has never been stronger.”

For more than two years, strong oil production from the Organization of the Petroleum Exporting Countries and those outside the bloc, such as the U.S. and Russia, created a supply overhang that dragged prices to below $30 a barrel earlier this year.

Production in some countries, including the U.S., has declined in the past year as low prices forced producers to cut spending on new drilling. But a recent rally in oil prices allowed some U.S. producers to put more rigs to work, which could increase production in the coming months.

OPEC, meanwhile, has increased its production in the past two years as its members compete for market share, which has weighed on oil prices. OPEC said Wednesday that the 14-member group’s July crude production rose by 45,000 barrels a day from the prior month to 33.11 million barrels a day. Saudi Arabia, OPEC’s top exporter, told OPEC that its July crude production hit an all-time high of 10.67 million barrels a day.

OPEC announced that the group will meet informally in September to discuss a response to low prices. The market is skeptical that the meeting will yield an agreement, as recent talks about potential production freezes fell apart. Venezuelan President Nicolas Maduro said he spoke to Saudi Arabia’s king about boosting oil prices and is reaching out to the heads of state of fellow producers Russia, Iran and Qatar as his country reels under the crude crash.

Venezuela, holder of the world’s biggest oil reserves, wants to stabilize prices that fell to a four-month low last week, Maduro said on state-run television Tuesday night. The longer-term goal is crude at around $70 a barrel, he said.

With rigs coming back online in the United States, increasingly efficient cars and trucks coming to showrooms, and impressive technological advances helping America’s oil industry bring its break-even points ever lower, OPEC’s plan to force producers in the West to leave the field continues to fail. Consumers can expect lower oil, natural gas, and gasoline prices for the foreseeable future. They can also enjoy watching the increasing pain that OPEC is suffering as their attempt to manipulate the oil market to their advantage works against them.