Latest API Report Sends Oil Crashing

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By Jacob Maslow

Oil drilling platform - oceanThe latest report by the American Petroleum Institute regarding US crude oil supplies is very depressing if you are long on oil. If you are expecting oil to continue to surge, thanks to short covering and bad news coming out of the Middle East, you might want to sit down. According to the American Petroleum Institute, the amount of US crude oil did not decline. Instead of the economy consuming all this petroleum stock, it actually increased. By how much? We’re talking about a gigantic 14.3 million barrels.

This news is a bombshell as far as the price of oil is concerned. It appears that all the analyst talk regarding oil supplies being a soak up by the larger global economy just hasn’t come to pass. The reality is that as oil producers shut in oil rigs, the existing oil rigs are so efficient and so productive that the total amount of oil actually goes up. At the very least, this is happening in the United States. I’m not so sure whether other countries are experiencing the same productivity gains.

This latest API report is sure to bring a lot of headaches for oil traders who are hoping that the recent surge in oil prices would be permanent. As I’ve mentioned before, there seems to be a natural cap to the price of oil. A petroleum can only go up so far until less economical oil extraction methods become economical again. Once these rigs are back up, the price of oil will start crashing down again. That’s the classic case of supply and demand.

Moreover, people are too optimistic regarding the upside of oil. I don’t understand why this is the case because the global economy as a whole is slowing down. While consumer demand for oil is still growing, it’s not growing as fast as it needs to be to sustain high prices for petroleum.

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