Oil Prices Plunge on Surprise Rise in US Oil Inventories

• Oil Prices Plunge on Surprise Rise in US Oil Inventories

The U.S. crude oil production rose to the highest in more than three decades last week, according to the data from the Energy Information Administration.

U.S. crude inventories surged by 2.24 million barrels in the week ending November 3. This is higher than the 2.24 million decline projected by most experts.

While oil has climbed about 20 percent since September on signs the OPEC and non-OPEC will extend production cuts past the first quarter of 2018, the surge in US stockpiles remains a threat to OPEC strategy.

“Higher prices are a definite factor in bringing production back on — this is a problem for OPEC,” said Michael McCarthy, a chief strategist at CMC Markets in Sydney. “The first response comes from the most agile producers, but once it looks like oil prices could be sustained at higher levels, then even less agile producers can come back online.”

Brent crude oil plunged from $64.27 a barrel reached on November 6 to $63.70 after the report. While the US West Texas Intermediate crude dropped to $56.95 a barrel from $57.37.

Some experts believe the price rally that pushed the Brent crude up by more than 40 percent since July may have run its course. Indicating traders are expecting the surge in US oil production to offset recent gains.

“So this (rally) will prove quite short-lived and we’ll see the price back into $50-$55 a barrel over the next year or two.” U.S. crude stockpiles C-STK-T-EIA rose 2.2 million barrels in the week to Nov. 3, to 457.14 million barrels, the Energy Information Administration said on Wednesday.