Oil Drops Amid Supply Glut Fears
(Bloomberg) -- Oil resumed declines as an industry report signaling a surprise jump in U.S. crude inventories stirred fears of a supply glut at a time when trade wars are jeopardizing the global demand outlook.
Futures in New York dropped as much as 1.2% after closing up 0.4% on Tuesday following a four-day drop. The American Petroleum Institute reported U.S. crude stockpiles rose by 3.55 million barrels last week, according to people familiar with the data. That compares with the median estimate in a Bloomberg survey for a 2 million barrel decline.
Oil is teetering on the edge of a bear market after falling almost 20% from a peak in late April as an aggressive U.S. trade policy stokes fears that the global economy is headed for a sharp slowdown. This has made it likely that the Organization of Petroleum Exporting Countries and its allies will extend their production curbs beyond June. But given the magnitude of the drop in prices, Saudi Arabia may now need to cut even deeper, according to Helima Croft, chief commodities strategist at RBC Capital Markets.
“Markets are bearish with the outlook for slowing growth in global crude demand, as well as rising U.S. production leading to a glut,” said Miyoko Nakashima, a senior strategist at Mizuho Securities Co. in Tokyo. Even if OPEC cuts output further, West Texas Intermediate crude futures may only rise to about $60 a barrel as the trade conflicts will limit demand growth, she said.
WTI for July delivery fell 48 cents, or 0.9%, to $53 a barrel on the New York Mercantile Exchange at 7:04 a.m. in London after dropping as much as 62 cents earlier. It declined 19.3% from a high on April 23 through Tuesday’s close.
Brent for August settlement dropped 41 cents, or 0.7%, to $61.56 a barrel on London’s ICE Futures Europe exchange. The contract climbed 69 cents to $61.97 on Tuesday. The global benchmark crude was trading at a premium of $8.41 to WTI for the same month.
The API data also showed a combined 9 million barrel increase in distillates and gasoline stockpiles. If the rise in U.S. crude inventories is confirmed by Energy Information Administration figures due Wednesday, that will be the third increase in four weeks.
Russia remains the wild card regarding the OPEC+ coalition output curbs. Extending the cuts may serve the interests of Saudi Arabia but not Russia, Rosneft PJSC Chief Executive Igor Sechin said Tuesday. Russian Energy Minister Alexander Novak signaled last month the nation is open to relaxing the output restrictions.
--With assistance from James Thornhill.
To contact the reporter on this story:
Tsuyoshi Inajima in Tokyo at firstname.lastname@example.org
To contact the editors responsible for this story:
Serene Cheong at email@example.com
Andrew Janes, Heesu Lee
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.