Economy

Crude Inventories Defy Forecasts, Cause Yet Another Price Plunge

Crude Inventories Defy Forecasts, Cause Yet Another Price Plunge

The global oil market has taken a heavy toll due to heightened worries about weakening global economic growth, triggered by trade frictions between the United States and its trading partners. The global benchmark crude was trading at a premium of $7.79 to WTI for the same month.

"That the Saudi energy minister's remarks failed to boost crude prices suggests investors are focusing on trade tensions and USA oil", said Satoru Yoshida, a commodity analyst at Rakuten Securities in Tokyo.

"I can't stress enough how bearish today data's was today on crude, with a massive build even in gasoline", said Tariq Zahir, founder of the oil-focused Tyche Capital Advisors fund in NY.

USA crude production continues to surge, however, as increased drilling in the prolific Permian shale basin helped push output to a record 12.4 million barrels per day (bpd) by the end of May. In response, China raised additional tariffs on a range of USA imports on June 1. Trump said he will start with a 5% tariff on Mexico and raise that to 25% unless the flow of undocumented migrants and drugs from across the border stop.

Brent futures were down $1.77, or 2.9 percent at $60.20 a barrel by about 3 p.m. GMT, having briefly traded in positive territory early in the session.

The price of oil at the global market is being pushed down by a slowdown in economic activities that is impacting fuel consumption.

In a midst of surging yields, US commercial crude inventories also soared to their highest levels since July 2017.

"Rising U.S. production is more than offsetting the efforts from the OPEC+ and if we add the negative effect a trade war could have on energy demand the result is lower prices", said Alfonso Esparza, senior analyst at futures brokerage OANDA.

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Both Brent and U.S. crude are in bear-market territory, having lost more than 20% from peaks reached in late April.

According to the data released by the Energy Information Administration (EIA) on Wednesday, U.S. crude inventories rose by almost 6.8 million barrels in the week to May 31.

At 483.3 million barrels, the EIA said, crude oil inventories were some five per cent above the seasonal average.

If the risk of recession recedes, prices will rise again, but for the moment traders are sending a signal to Saudi Arabia and US shale producers on the need to curb output growth in the face of a likely economic slowdown.

Members of the OPEC+ group are set to discuss whether to extend their supply curbs further later this month. "To me, that means drawing down inventories from their now elevated levels", al-Falih told Arab News.

"High compliance to OPEC's oil production deal and lower on-land oil inventories over the coming months should lead to supply-and-demand deficits in the second and third quarters, putting renewed upward pressure on prices", Swiss investment bank UBS said in its report.

Oil prices hovered near five-month lows in the preceding session, however, sentiment continued lower as markets are under pressure amid surging USA supply and a stalling economy.


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