Epic oil glut gets worse

The story behind oil's plunge
The story behind oil's plunge

Don't be fooled by the recent spike in oil prices. The world continues to drown in excess supply.

U.S. oil stockpiles skyrocketed by 9.4 million barrels last week to 532.5 million barrels, according to figures released on Wednesday by the U.S. Energy Information Administration. That's roughly triple what analysts had been bracing for and adds to "historically high" inventory levels.

It's evidence of a deepening supply glut despite the recent rise in oil prices which would signal the opposite. Last week crude climbed above $40 a barrel for the first time since early December amid hopes that global producers will freeze their production at current levels. There have also been signs that U.S. output is gradually declining.

However, the latest EIA report shows that inventories continue to pile up in the mean time.

"We are oversupplied. This price rally feels a little bit premature," said Anthony Starkey, energy analysis manager at analytics firm Bentek Energy.

Oil prices retreated 3% on Wednesday to around $40.20 a barrel, dragging down shares of energy stocks like Chevron (CVX) and ConocoPhillips (COP).

Related: Crude oil is back from the dead

Interestingly, the latest surge in supply was driven by overseas producers. The EIA said the U.S. imported 8.4 million barrels of oil per day last week, up by nearly 700,000 barrels from the prior week.

A big chunk of that oil was from Saudi Arabia, the OPEC leader that has pushed for the freeze in oil production. There were about 10 million barrels of Saudi oil cargo that arrived in the U.S. last week, according to ClipperData, which tracks global shipments. Another two million barrels were from Iraq, while producers in South and Central America shipped nearly 13 million barrels, ClipperData said.

"As U.S. production has fallen, we are filling some of that gap with higher imports," said Starkey.

Related: Saudis to take control of largest U.S. refinery

In addition to making up for declines in American output, the rising imports reflect shifting pricing dynamics in the oil market. Starkey said "foreign barrels looking for a place to park" have been incentivized to come to the U.S.

Storage capacity is relatively high in the U.S. compared to the rest of the world. But even those storage facilities have lately been almost running out of room.

The one bright spot for the energy market is gasoline. The EIA said total motor gasoline stockpiles plunged by 4.6 million barrels last week.

"Low oil prices have spurred some demand. People are buying larger vehicles and driving more," said Starkey.

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