Brent, the global benchmark for oil, fell below the key $60 per barrel support level Wednesday after a big surprise build in U.S. crude stockpiles, triggering questions on how much more production OPEC could cut to save a market plunging deeper into bear-market territory.
Both U.K. traded Brent and U.S. West Texas Intermediate have fallen more than 20% from 2019 highs hit in April as the combination of U.S. trade wars with China and Mexico and an increasingly worsening supply-demand picture for oil has roiled the global oil market.
WTI settled down $1.80, or 3.4%, at $51.68 per barrel. It fell more than 5% earlier to $50.62, its lowest level since Jan. 14. Many oil pundits think the U.S. crude benchmark will be next to break crucial support, falling below $50 by this week.
Brent was down by $1.27, or 2.4%, to $60.70 by 2:45 PM ET (18:45 GMT). It sunk earlier to a five-month low of $59.45.
Wednesday’s latest weekly dataset from the U.S. Energy Information Administration was another example of the dire situation in oil with crude oil inventories increasing by 6.77 million barrels in the week to May 31 versus forecasts for a stockpile draw of 0.85 million barrels.
The EIA report also showed that gasoline inventories increased by 3.21 million barrels, compared to expectations for a gain of 0.63 million barrels, while distillate stockpiles rose by 4.57 million barrels, compared to forecasts for a build of 0.50 million.
Over and above that, U.S. crude production hit new record highs of 12.4 million barrels per day. Total petroleum stockpiles grew by about 22 million barrels last week, the biggest jump going back to 1990, marking a three decade high.
“I can’t stress enough how bearish today data’s was today on crude, with a massive build even in gasoline,” said Tariq Zahir, founder of the oil-focused Tyche Capital Advisors fund in New York.
“The calendar at this time of year usually produces draws as crude is refined to gasoline,” Zahir said. “With the trade wars we’re having, we could continue to see a risk-off posture in the energy markets. Any rallies in crude oil at this point, I feel, will be short lived.”
Matthew Smith, who tracks crude cargoes for New York-based Clipperdata said there was barely anything positive in the EIA data.
“Crude inventories are now at their highest since July 2017, up nearly 44 million barrels since mid-March,” Smith said. “A big drop in implied product demand has spurred on further bearish data points, with large builds to both gasoline and distillates.”
Crude futures hit 2019 highs in April, with WTI reaching $66.60 and Brent $75.60, from the combination of OPEC production cuts and U.S. sanctions on Iranian and Venezuelan crude exports. Since then, the escalating U.S.-China trade row has had a greater impact on the oil market’s narrative, with the clash between the two economic titans sparking global recession worries.
President Donald Trump’s threat last week to impose tariffs on Mexico beginning next Monday broke the last vestiges of the oil market’s resilience. Producers in Mexico ship car components, televisions, clothing, alcohol, agricultural products and fuel to the U.S. in daily trade amounting to $1.7 billion. Trump said he will start with a 5% tariff on Mexico and raise that to 25% unless the flow of undocumented migrants and drugs from across the border stop.
The 14-member OPEC and its 10 allies led by Russia are due to met in Vienna on June 25 to discuss further production cuts to balance the market.
But the chief executive of Russian oil giant Rosneft is trying to convince his government not to do another production cut deal with OPEC, saying Moscow will lose market share of its oil to the U.S. by curbing exports.
“Does it make sense (for Russia) to reduce (oil output) if the U.S. immediately takes (our) market share?” said Sechin, who added that Russian oil companies should be allowed to pump at will or be compensated by Moscow for the cuts they are making.