Weekly Crude Inventories Rise More Than Expected

The American Petroleum Institute (API) reported a significant increase in U.S. crude oil inventories for the week ending January 17, 2025, with a build of 2.86 million barrels. This figure surpassed analysts' expectations of a 3.7-million-barrel build, indicating a stronger-than-anticipated supply situation in the market.



The API's data suggests that supply outpaced demand during the week, leading to a larger-than-expected increase in inventories. This development could put downward pressure on crude oil prices, as the market grapples with an oversupply situation.



Several factors contribute to the unexpected increase in crude oil inventories:

1. Increased Production: Non-OPEC+ production, led by countries in North and South America, has been growing strongly. In 2024, these four countries alone increased their total liquids production by a combined 1.1 million barrels per day (b/d). This growth is expected to continue in 2025 and 2026, contributing to the increase in global oil supply and inventories (Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2025).
2. Slower Demand Growth: While global oil demand has been growing, the rate of growth has been slower than the pre-pandemic average. This slower demand growth, combined with increased production, has led to a build-up in inventories. In 2024, global oil demand growth is now assessed at 940 kb/d, accelerating to 1.05 mb/d in 2025 (Source: IEA Oil Market Report, January 2025).
3. OPEC+ Production Cuts: OPEC+ members have been restraining production to prevent prices from falling further. However, these production cuts have not been enough to offset the growth in production from non-OPEC+ countries. In 2024, OPEC+ members reduced production by an estimated 1.3 million barrels per day (b/d), while production by countries outside the group increased by 1.8 million b/d (Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2025).

In the coming weeks and months, these factors are likely to evolve as follows:

* Increased Production: The growth in production from non-OPEC+ countries is expected to continue in 2025 and 2026, but at a slower rate than in previous years. This is due to potential constraints around takeaway capacity or delays in project startups (Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2025).
* Slower Demand Growth: As the economic outlook improves marginally, global oil demand growth is expected to accelerate to 1.05 mb/d in 2025. However, this growth is still slower than the pre-pandemic average, which could continue to contribute to the build-up in inventories (Source: IEA Oil Market Report, January 2025).
* OPEC+ Production Cuts: OPEC+ members are expected to continue to restrain production in 2025 and 2026 to prevent prices from falling further. However, these production cuts may not be enough to offset the growth in production from non-OPEC+ countries (Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2025).

In conclusion, the recent increase in crude oil inventories reflects a balance between supply and demand in the global oil market, with both increases and decreases in inventories indicating shifts in the market's dynamics. The unexpected increase in inventories can be attributed to increased production, slower demand growth, and OPEC+ production cuts. These factors are likely to evolve in the coming weeks and months, with increased production and slower demand growth continuing to contribute to the build-up in inventories, while OPEC+ production cuts may have a more uncertain impact on global oil supply and inventories.