U.S. Oil Stockpiles Continue to Build, Undermining OPEC’s Cuts

(Wall Street Journal – David Bird)

The Organization of Petroleum Exporting Countries cut crude-oil output by nearly 1.3 million barrels a day in January in an attempt to tame the supply glut that is anchoring prices near $40 a barrel.

But as the cartel tightened the taps, crude-oil inventories in the U.S. were increasing by 700,000 to 900,000 barrels a day. That growth rate, the most seen in the month of January in 85 years and the highest in any month since at least October 2002, is a setback to OPEC’s efforts.

Crude oil is piling up as the global economic crisis has cut consumer demand for petroleum products such as gasoline and diesel fuel. The oversupply that is driving down near-term prices makes it profitable for refiners to amass crude-oil inventories.

Rising inventories are a further blow to OPEC, which is reeling from the fall in global oil demand and prices. Crude-oil futures are down 72% from their record above $145 a barrel hit in July. Each barrel of oil that goes into storage in consumer countries weakens the cartel’s hold on the market and potentially prolongs the price skid.

OPEC pledged to cut output by 4.2 million barrels a day in September. Since then, the group has cut production by a total 3.135 million barrels a day, indicating a compliance rate of 75%, a survey by Dow Jones Newswires estimates.

Saudi Arabia, the world’s biggest oil exporter and OPEC member, cut output below its agreed level of 8.05 million barrels a day in January. Saudi output of 7.9 million barrels a day was the lowest since October 2002. Now, analysts said, the plunge, alongside oil’s inability to recover, will require deeper cuts by Saudi Arabia and OPEC to prop up the market. Read more here.