Brent crude oil futures held above $48 a barrel on Thursday as investor inflows offset data showing that U.S. crude stocks had hit a record high.
By 0928 GMT on Thursday, U.S. crude CLc1 was trading at about $44.50 a barrel, up 5 cents and off a six-year low hit on Wednesday. Brent LCOc1 was up 26 cents at $48.73 a barrel.
On Wednesday, the U.S. Energy Information Administration (EIA) said domestic crude oil stocks had risen by almost 9 million barrels week on week to nearly 407 million, the highest level since the government began keeping records in 1982.
This pushed U.S. crude futures to an intraday low of $44.08 a barrel, the weakest level since April 2009, but Brent held up relatively well.
“It’s a tug of war between the non-supportive fundamentals and investor flows – investors are more concerned about missing a potential bounce,” said Ole Hansen, senior commodity strategist at Saxo Bank. “But there is nothing bullish to be found in those numbers. The break will be to the downside.”
Analysts expect stockpiles to keep building as U.S. production has shown no signs of slowing, and when refiners enter seasonal turnarounds, utilisation rates will fall.
In addition, the market structure incentivises traders to buy cheap crude to store, with the aim of selling it at a higher price for future delivery.
“With weak pricing and contango structures across most U.S. grades, storage plays will continue to attract material into tanks. Until seasonal maintenance is out of the way there appears to be little incentive to do otherwise,” analysts at Energy Aspects said in a note.
Some traders believe this buying to store has provided a “false bottom” in the market, and that when land storage gets filled, or floating storage economics no longer work, there will be another sell off in futures.
“Traders buying and putting oil into storage may be holding the price for now,” said Christopher Bellew, a broker at Jefferies Bache in London. “I see the market as being in a consolidating phase … (but) at some point I expect a move to the downside.”
He suggested Brent could test $40 or go lower. “My principal reason for being so bearish is the production war within OPEC as Saudi and Iraq both seek to maximise sales and U.S. production has not yet started to slow.”
Saudi Arabia has said it is unwilling to balance the market alone and will maintain output in hopes low prices will drive higher-cost producers to cut their output.