Oil prices dropped to approximately four-month lows on Wednesday, with Brent temporarily declining below $ 50 a barrel, after data showed U.S. crude inventories increasing faster than anticipated, stacking stress on OPEC to outspread output cuts beyond June. The U.S. Energy Information Administration (EIA) mentioned U.S. inventories increased approximately 5 million barrels to 533.1 million last week, far outperforming forecasts of 2.8 million.
“A persistent increase in U.S. oil production, together with a rise in imports from Canada, contributed towards a large build in crude oil inventories,” said Abhishek Kumar, senior energy analyst at Interfax Energy in London. “The market remains nervous about rising U.S. production, which is also reducing the effectiveness of outputs by the OPEC and some non-OPEC countries,” Kumar added.
Global benchmark Brent futures for May delivery declined by 84 cents, or 1.7 percent, at $ 50.12 a barrel by 10:54 a.m. EDT. The contract dropped as low as $ 49.71. On its first day as the front-month, U.S. West Texas Intermediate (WTI) crude futures for May declined 77 cents, or 1.6 percent, to $ 47.47 per barrel. The session low was $ 47.01. Both benchmarks struck their lowest since Nov. 30 when OPEC countries settled to cut output, and both remained technically oversold territory. WTI was oversold for the third day in a row, Brent for the second.
A deal between the Organization of the Petroleum Exporting Countries and some non-OPEC producers to cut output by 1.8 million barrels per day (bpd) in the first half of 2017 has done little to reduce bulging global oil stockpiles. OPEC, which sources say is leaning toward extended cuts, has broadly delivered on pledged reductions, but non-OPEC states have yet to cut fully in line with commitments. “OPEC has used up most of its arsenal of verbal weapons to support the market,” said Ole Hansen, head of commodity strategy at Saxo Bank. “One hundred percent compliance by all is the only tool they have left and on that account they are struggling.” .
U.S. shale oil producers have been adding rigs, increasing the country’s weekly oil production to about 9.1 million bpd for the week ended March 10 from an average 8.9 million bpd for 2016, according to U.S. data. “OPEC’s market intervention has not resulted in significant visible inventory drawdowns, and the financial markets have lost patience,” U.S. bank Jefferies said in a note. However, the bank mentioned the market was undersupplied, and OPEC extended reductions into the second half, inventories would draw down and prices above $ 60 in the fourth quarter. However, it mentioned U.S. crude production was forecasted to increase by 360,000 bpd in 2017 and 1 million bpd in 2018, and a price recovery could spur more U.S. shale activity.