Oil prices drop to seven-month low on surprise US gasoline stock build

Oil prices dropped on Wednesday after the US Energy Information Administration released data showing a surprise build in gasoline stocks. PDC Energy photo.

Oil prices dragged down by gasoline futures

Oil prices fell by nearly four per cent in trading on Wednesday to land at their lowest since November, after the US Energy Information Administration released data showing a surprise increase in US gasoline inventories.

As well, the International Energy Association issued a report on Wednesday forecasting a large increase in supply in 2018.

Brent crude futures settled down $1.72 to $47/barrel. This is the lowest close for Brent since Nov. 29, one day before OPEC announced it had agreed to a production cut.

US WTI fell by $1.73 to $44.73/barrel, the lowest since Nov. 14. WTI has dropped 18 per cent since its closing high of $54.45 in late February.

“Oil futures are being dragged down by gasoline futures. The industry continues to turn a crude oil surplus into a gasoline and distillate product surplus,” Andrew Lipow, president of Lipow Oil Associates in Houston told Reuters.

According to EIA data, US crude stocks fell by 1.7 million barrels, but gasoline inventories rose by a surprising 2.1 million barrels.

Analysts polled by Reuters prior to the release of the data predicted gasoline stocks would fall by 0.5 million barrels.

Nearly six months into the OPEC-led efforts to cut the global crude glut, oil prices have not stabilized at higher levels that had been anticipated by many after the group agreed to cut their output.

“We need to see a sign that the OPEC cuts are having an impact on world oil supplies and it’s clearly not, at least not yet,” said Tamar Essner, lead energy analyst at Nasdaq told Reuters.

Along with the EIA data impacting oil prices, the International Energy Agency data projected growth in non-OPEC supply to be higher next year than growth in overall global demand.

“For total non-OPEC production, we expect production to grow by 700,000 b/d (barrels per day) this year, but our first outlook for 2018 makes sobering reading for those producers looking to restrain supply,” the IEA said in its monthly oil market report.

“The outlook for oil hinges on the effectiveness of the OPEC cuts relative to the supply increases from U.S. shale,” William O’Loughlin, analyst at Australia’s Rivkin Securities told Reuters.

In BP’s annual Statistical Review of World Energy issued on Tuesday, data showed global energy demand grew by 1 per cent in 2016, similar to the previous two years, but well below the 10-year average of 1.8 per cent.