Crude inventories drop from record levels

Bernard Weinstein, an economist and associate director of SMU's Maguire Energy Institute, talks about the drop in crude oil reserves and what it means for the economy.

By Jacob Sweeney-Samuelson

U.S. commercial crude inventories dropped by an unexpectedly sharp 6.3 million barrels, or 1.6 percent, in the week ended May 31, according to a report released by the U.S. Energy Information Administration, indicating a retreat from last week’s levels, which were the highest recorded since these records began in 1978.

The government report was in line with the larger than-expected drop in supplies of 7.79 million barrels reported Tuesday by the private American Petroleum Institute.

Stocks of crude, excluding those in the U.S. Strategic Petroleum Reserve, ended the week at 391.3 million barrels, still higher than average for this time of year and 1.7 percent higher than the year-ago week. This is down from the prior week when supplies had climbed to the new record level of 397.6 million barrels.

Analysts had expected a drop of only 400,000 barrels, according to a survey by Dow Jones Newswires.

Despite this week’s relief from the peak inventory levels, some economists focused on the longer-term pattern of elevated crude supplies.

“The inventory buildup," said Bernard Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University, "is a reflection of several things: the huge increase in production while domestic consumption is flat to declining, and a limited ability to export crude in the short term. And of course the seasonality of the market.”...