US crude prices drop below $50/barrel as stocks increase
US crude prices fell 3 per cent in trading on Thursday to their lowest values since Dec. 1. PDC Energy photo.
US crude prices fall on US oil stockpile increases
Oil prices fell in three per cent trading on Thursday, extending the biggest falls in 2017 after a surge in US crude inventories pointed to a global crude glut despite the OPEC supply cut pact.
Brent crude was down $1.46/ barrel to $51.65, after reaching an intraday low of $51.53, the lowest its been since Dec. 1. US light crude reached an intraday low of $48.67, down 2.8 per cent, ending at $48.85/barrel.
On Wednesday, US crude slumped 5.4 per cent and Brent fell 5 per cent.
“The market went into a meltdown yesterday,” Tamas Varga, analyst at London brokerage PVM Oil Associates told Reuters. “The risk is now tilted to the downside. Lower numbers are not a foregone conclusion yet, but bears are in control.”
Also on Wednesday, it was reported US crude stocks surged to 528.4 million barrels, reaching an all-time high. The week-to-week increase of 8.2 million barrels was well above analysts’ forecasts of a 2 million barrel build.
The surge in US inventories occurred despite efforts by OPEC to reduce production by almost 1.8 million b/d in the first half of 2017.
Kuwaiti Oil Minister Essam Al-Marzouq says OPEC’s compliance with the cuts has exceeded targets and he credits Saudi Arabia for the pact’s success after the kingdom cut production by more than it has originally agreed upon.
Hazma Khan, head of commodities strategy at ING Bank in Amsterdam told Reuters “U.S. oil stockpiles have gained around 50 million barrels since the start of the year, raising some doubts over the effectiveness of OPEC cuts.”
On March 26, OPEC and non-OPEC ministers will meet in Kuwait to review compliance with the production cuts.
The cartel is hoping it can persuade other producers to make deeper cuts to try to boost crude prices that have fallen below some breakeven costs since 2014.
A quick decision is needed as low oil prices will likely encourage producers to increase output to balance their budgets.
“If things stay unchanged, then this week will be the worst week for oil prices since the OPEC deal (in November),” Olivier Jakob, managing director of Swiss consultancy Petromatrix told Reuters.
“If a quick rebound cannot be organized by the end of the week, then banks will start to revise lower their oil price forecasts,” he said.
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