This Is Why Oil Is Hitting New Lows

Crude oil prices hit fresh 6.5-year lows on Wednesday, and the trigger seems to be the most recent U.S. commercial crude oil inventories number reported by the U.S. Energy Information Administration (EIA). Inventories were widely expected to continue falling from all-time highs reached back in April, but the latest number indicated a surprise uptick, which sent ripples throughout the market.

The Numbers

Analyst consensus expectations for last week’s numbers were for an inventory decrease of 777,000 barrels on the week. Instead, the EIA reported an increase of 2.6 million barrels to 456.2 million. This number is still well short of the all-time inventory high of 490.9 million barrels reported back in April, but it is still extremely high from a historical perspective and is headed in the wrong direction compared to the prior week.

Prior to 2015, the EIA had never reported inventory levels that had breached the 400 million level.

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The Market Reacts

The unexpected bad news sent WTI prices plummeting to new multi-year lows. As of 2 p.m. EST on Wednesday, W&T Offshore, Inc. (NYSE: WTI) was trading at around $40.70/bbl, down 4.4 percent on the day. Shares of the United States Oil Fund LP (ETF) (NYSE: USO) were also getting pummeled by 3.3 percent to new all-time lows.

No Silver Lining

Unfortunately for drivers, gasoline inventories did not provide a silver lining. Gasoline inventories fell by 2.7 million barrels on the week compared to a 1.6 million barrel drop expected by analysts.

The EIA also lowered its near-term outlook for crude oil prices based on the latest inventory numbers. The EIA is now calling for WTI to average $49/bbl in 2015 and $54/bbl in 2016, $6/bbl and $8/bbl lower than its forecasts from last month.

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