Oil drops to a 2-week low as US gasoline inventories and crude output climb
Crude prices post biggest one-day fall since March 8
Oil fell to a two-week low on Wednesday, after a surprising build in US gasoline inventories and a rise in domestic crude output that is partially offsetting cutbacks by other countries trying to reduce a global glut.
US crude futures settled down US$1.97 to US$50.44 a barrel, a 3.8 per cent drop, the biggest one-day decline since March 8. Brent crude settled down 3.6 per cent, or US$1.96 a barrel, to US$52.93.
US crude stocks fell 1 million barrels in the latest week, the US Energy Information Administration said, a smaller draw than expected. Gasoline stocks posted a counter-seasonal build of 1.5 million barrels, despite heavier refining activity.
The surprise gasoline build, along with an increase in US production and imports from OPEC nations, pressured prices. Weekly imports from OPEC nations rose by 900,000 barrels, the EIA said.
“Inventories remain stubbornly high,“ said Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut. He added that as the United States is approaching the summer driving season, ”the build in gasoline points to the fact demand isn’t as strong as we expected.”
The global crude glut has persisted even as the Organisation of the Petroleum Exporting Countries and other producing countries have worked to reduce output almost 1.8 million barrels per day in the first half of 2017.
“Rising US production levels are offsetting more than a third of the six-month agreement of the 1.8 million barrel-per-day cut,” McGillian said. “It’s the warning bell to the strength of the market.”
“They drop production, we add production, and so at end of the day it’s ugly,” said Robert Yawger, energy futures strategist at Mizuho Americas.
US production rose to 9.252 million barrels a day in the latest week, highest since August 2015. Andrew Lipow, president of Lipow Oil Associates in Houston, said some in the market were concerned about the rapid recovery in shale production.
“Perhaps the amount coming out of the ground might be more than we anticipate,” he said.
Expectations for tighter supply boosted front-month futures contracts earlier this year against later-dated contracts. That trend has now reversed.