Oil Prices Drop As Demand Concerns Weigh On Markets

Daniel Fowler
June 14, 2019

WTI ended $1.80, or 3.4%, lower at $51.68 a barrel.

The EIA report also showed gasoline stockpiles rose 3.2 million barrels during the week-ending May 31. Stockpiles jumped despite refineries increasing activity and as USA crude imports jumped by more than 1 million barrels per day. The global benchmark fell as low as $60.21 earlier, its weakest since January.

U.S. WTI settled +1.8% to $52.59/bbl and Brent futures finished +1.7% at $61.67/bbl, and both benchmarks are rallying almost 3% in post-settlement trade.

Brent futures had also sank as low as $59.45, also its lowest since mid-January. Stockpiles of distillates, including diesel and home heating fuel, jumped by 4.6 million barrels.

USA crude production continues to surge, however, as increased drilling in the prolific Permian shale basin helped push output to a record 12.4 million barrels per day (bpd) by the end of May. To make matters worse, API reported an unexpected build in crude inventories in the United States for the week ending May 31.

"Obviously it's more than enough to satisfy demand by a lot and just makes for a really bearish report across the board".

Much of the concern about production is concentrated in nearby months, while the outlook further forward is dominated by fears about consumption.

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The stockpiles report compounded pressure on oil prices, which swiftly collapsed over the last week as the market braced for a prolonged trade battle between the US and China.

"So we expect the current market focus on trade tensions and oil demand growth to yield soon to the supply dynamics of OPEC+ curbs and the lower output from Iran and Venezuela", UBS noted. Unless there's a new geopolitical threat, such as a missile attack in the Middle East, West Texas Intermediate crude could drop below US$50 a barrel before Opec decides on whether to extend the production cuts, he said.

Saudi's Energy Minister, Khalid al-Falih had said a consensus was emerging among producers to continue working "to sustain market stability" in the second-half of the year.

Global oil prices are expected to teeter for the remainder of the year, as trade tensions and US crude inventories buildup continue to incur losses, yet output cut efforts by OPEC and its allies (OPEC+) would underpin the market, according to analysts at the world's leading investment banks.

Underlining concerns about oversupply, the head of oil giant Rosneft Igor Sechin said on Tuesday that Russian Federation should pump at will and that he would seek compensation from the government if cuts were extended.

In a midst of surging yields, USA commercial crude inventories also soared to their highest levels since July 2017.

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