Oil prices pressured by high production, inventories
On Tuesday, oil prices fell as investors already concerned about the global glut of crude struggled with a rising US dollar and weaker demand for petroleum in China.
Brent crude was dow 13 cents to $50.60/barrel by 12:53 p.m. EDT and US WTI fell by 14 cents to $47.45/barrel.
The US dollar rose to its highest level in almost three weeks, making crude which is sold in US dollars, more expensive for buyers using other currencies. Last week, while tensions were high over US and North Korea relations, a number of investors turned to gold and oil for safe havens.
On Monday, data showed Chinese oil refineries operated at their slowest daily rates since September. The decline was higher than expected and raised concerns about the health of Chinese demand and the level of its domestic stockpiles.
“People are taking a hard look at what the balance is,” John Kilduff, a partner at Again Capital LLC told Reuters. “We had seen in the past few weeks that demand growth was robust, and this turned that on its head.”
Investors also see ample supply from oil exporters, including OPEC and the United States as reasons to sell long positions bought in July when prices were rising. Brent and US crude reached two-month highs in August, but have since tumbled in recent days and fell over 2.5 per cent on Monday.
On Tuesday afternoon, the American Petroleum Institute will release its weekly US oil data and on Wednesday, the US Energy Information Administration will release its report.
“As much as oil inventories have been coming down in the U.S., which is something that is seasonally normal, the fact that U.S. shale production is very resilient and is again confirmed by this EIA Drilling Productivity Report–that is something that is weighing on the market’s mind,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, told Bloomberg by telephone.
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Analysts are anticipating a drop in US crude inventories as well as a drop in distillate and gasoline stocks.
“The focus remains on OPEC, U.S. inventories and disappointing China demand,” Hans van Cleef, senior energy economist at Dutch bank ABN Amro in Amsterdam told Reuters. “Those concerns have triggered profit-taking after a strong run-up in July.
John Kilduff says if US crude falls below $47/barrel and Brent crude drops below $50/barrel, prices could hit levels seen in June.
“We’re on the precipice of a large sell-off,” he said.
“With producers unwilling for the time being to contemplate deeper supply cuts, we’re stuck in the same situation. How do you actually rebalance the market if the efforts you are making are not sufficient in light of what’s happening elsewhere?” Tchilinguirian said.
