Crude drops as investors weigh another inventory build
London (Feb 25) Oil prices fell on Thursday after data showed U.S. crude inventories rose further last week underscoring the extent of the oversupply that has dogged the market for nearly two years.
Brent crude LCOJ6, -0.61% the global oil benchmark, fell 1.4% to $33.92 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures CLJ6, -0.19% were trading down 1.4% at $31.71 a barrel.
U.S. crude inventory rose by 3.5 million barrels last week, according to data from the U.S. Energy Information Administration. Gasoline stocks showed a surprise decline of 2.2 million barrels, indicating stronger demand.
However, at 507.6 million barrels, the latest increase pushed total domestic crude inventory to another weekly high and 74 million barrels higher compared with last year. In monthly data, which doesn’t line up exactly with weekly data, inventories last exceeded 500 million barrels in 1930.
“The market lacks drivers so U.S. crude oil inventory is still the main thing traders look at it. The latest figure clearly shows that the global glut isn’t going anywhere,” said Barnabas Gan, an OCBC energy analyst.
Read: Low oil prices may signal end of economic weakness, not beginning
The inventories have further to rise as U.S. refiners are heading into their regular maintenance season that usually reduces demand, said Michael Poulsen, oil analyst at Global Risk Management.
The rise in U.S. stockpiles is mirrored around the globe. According to Bank of America Merrill Lynch, global petroleum stocks have increased by 800 million barrels since the beginning of 2014.
This mismatch between ample supplies and tepid demand has driven oil prices down by around 70% since the summer of 2014. But while many companies in the sector are struggling with the low prices and have cut investment budgets, the resilience of U.S. shale producers has surpassed market expectations, analysts say.
U.S. oil output has stayed above 9 million barrels a day in recent months, despite a fall in drilling activity. Last week, output fell marginally by 33,000 barrels a day to 9.1 million barrels a day, according to the EIA.
Opinion: Commodity-stock rally: Buy these, not those
Still, according to consultancy JBC Energy, U.S. output is now showing more credible evidence that the low prices are really starting to bite.
“At this time last year, U.S. production was still climbing higher but with oil now trading a full $20 lower things are really different this time around,” JBC said in a note to clients, predicting that prices might rise to $50 a barrel over the next four months.
Other analysts are more bearish.
“Without a material reduction in supply, we’re still looking at an ongoing supply and demand surplus, with higher inventory levels and possibly lower oil prices still on the way,” said Tim Evans, a Citi Futures analyst.
Nymex reformulated gasoline blendstock for March RBH6, -0.45% — the benchmark gasoline contract — fell 0.8% to $1.27 a gallon. ICE gasoil for March changed hands at $309.50 a metric ton, up $7.25 from the previous settlement.
Source: MarketWatch
