Crude sinks below $27 despite decline in US stockpiles

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Oil prices on the New York Mercantile Exchange Thursday tapped below $27 per barrel as the market largely ignored a drawdown in U.S. crude oil stockpiles amid a wider supply glut.

The U.S. Energy Information Administration on Wednesday reported that crude inventories fell by around 800,000 barrels for the week ended Feb. 5, which should normally have supported prices. But total stocks showed weekly growth for the 11th week out of 14 with unexpectedly large additions to product stockpiles.

“The market took the view…that the decline in U.S. crude oil stockpiles would be temporary and this kept downward pressure on prices overnight,” said an ANZ Bank report.

The International Energy Agency and the EIA said this week they expect such oversupply to persist for months, keeping prices low. The Organization of the Petroleum Exporting Countries earlier Wednesday cut its forecasts for global oil-demand growth, citing lower consumer appetite in places such as Russia and Brazil despite low prices.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in March  traded at $27.01 a barrel, down $0.44, or 1.6%, in the Globex electronic session, but traded as low as $26.72. April Brent crude  on London’s ICE Futures exchange fell 15 cents, or 0.5%, to $30.67 a barrel. Oil settled at a 3-week low on Wednesday, falling under $28.

One silver lining for Nymex has been its widening price difference to Brent, which should increase the export competitiveness of U.S. oil grades, says a report by BMI Research.

Dollar weakness that followed dovish remarks by U.S. Federal Reserve Chair Janet Yellen regarding the outlook for interest rate increases also failed to support oil prices.

Another analyst said that the price trend showed that bearish sentiment rather than fundamentals alone were keeping prices down. “We strongly believe that bargain hunting would set in,” says a report by Phillip Futures.

The recent plunge in oil prices has also defied a historical correlation with gold, which usually sees both commodities rise in tandem. Spot gold prices rose to an eight-month high Thursday above a psychological level of $1,200 an ounce because of dollar weakness.

Nymex reformulated gasoline blend stock for March  — the benchmark gasoline contract — fell to 0.9350 cents a gallon from 0.9425.

ICE gas oil for February changed hands at $276 a metric ton, down $0.25 from Wednesday’s settlement.

By Biman Mukherji

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