Oil prices fall five per cent as US inventories rise for ninth straight week

Oil prices at lowest levels this year

On Wednesday, oil prices fell five per cent to their lowest levels in 2017y after a report issued by the US Department of Energy showed a much larger increase in US crude inventories than expected, feeding concerns that the global crude supply glut is not easing.

Technical analysts say increased selling could occur if prices fall below support levels after being in a tight trading range this year.

“We’re seeing some ‘GMO trading’, or ‘Get-Me-Out’ type trading,” Andrew Lebow, senior partner at Commodity Research Group told Reuters.

“It’s a combination of an overhang of (speculative) length and the overhang in inventories … and the other thing unnerving the market is rapid growth in U.S. crude production.”

US crude inventories rose by 8.2 million barrels last week, over four times the 2 million barrels analysts had expected.  This was the ninth-straight week a rise in US crude supplies was reported.

Last week, refineries cut output and crude imports rose according to data from the US Energy information Administration.

Brent crude slumped dropped by $2.81 to its lowest level since early December, at $52.93, before settling at $53.11, down 5.03 percent.

Oil prices fell the biggest percentage drop since February of last year.  Trading volumes jumped with over 877,000 lots of 1,000 barrels each changing hands in WTI, the most since Dec. 1. In Brent trading, volumes hit the highest since early December with over 419,000 lots traded.

Both contracts were below their 100-day moving averages for the first time since the OPEC supply cut deal was announced in late November.

 

In an interview with Reuters, Brian LaRose, analyst with ICAP said “This is one of those occasions where the news follows the trend and we’ve now tried for the better part of the year to get through the $55-$56 area for WTI specifically and we’ve failed.”

“This is more of a catalyst and a wake-up call to a lot of people to say here’s some fundamentals to back up what technicals have been saying for the last three weeks.”

The most active options of the day included WTI April $50 puts with more than 21,000 lots traded,  April $51 puts with more than 18,00 lots and May $50 puts with over 17,000 lots.

Key support levels for WTI being tested are the $51-$50 range heading to the end of the week, LaRose said. Should that be breached, the next levels to watch would be the $47-$48 range.

Expectations of an interest rate hike buoyed the US dollar, putting more pressure on oil prices as greenback-dominated oil became more expensive for holders of other currencies.

Since Jan. 1, oil prices have been supported by the OPEC supply cut deal and high compliance with the pact.

OPEC representatives say it is too early to talk of extending the agreement, a position echoed by the Saudi oil minister at CERAWeek in Houston on Tuesday.