Oil prices drop to lowest finish in 3 weeks
U.S. natural-gas stockpiles inched higher last week
Oil prices headed lower for a third consecutive session on Thursday to log their lowest finish in about three weeks, after U.S. government data showed that domestic crude inventories hit a record and production edged higher last week.
“The all-time high crude stockpile levels in the U.S. is the number one reason” behind oil’s recent inability to climb, said Fawad Razaqzada, technical analyst at Forex.com.
On the New York Mercantile Exchange, April West Texas Intermediate crude CLJ7, -2.25% fell $1.22, or 2.3%, to settle at $52.61 a barrel. The settlement was the lowest since Feb. 8, according to FactSet data. May Brent crudeLCOK7, -2.31% on London’s ICE Futures exchange lost $1.28, or 2.3%, to $55.08 a barrel.
U.S. crude inventories rose to a historical high last week, increasing by 1.5 million barrels to 520.2 million barrels, according to data by the U.S. Energy Information Administration. The build was largely driven by significant imports from Saudi Arabia, Iraq, and Canada, as well as strong domestic production, which rose above 9 million barrels for the second straight week.
“The increase in U.S. stocks outweighed another decline in Saudi Arabian exports in February, indicating the top OPEC producer is cutting more output that expected,” said Joseph George, commodity analyst at Schneider Electric.
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Output from Saudi Arabia fell by 90,000 barrels a day to 9.78 million barrels in February from a month earlier—below the country’s target of 10.06 million, according to a Bloomberg survey.
But burgeoning U.S. crude output in recent months has largely offset the continuing production cuts by the Organization of the Petroleum Exporting Countries and Russia. The two counterforces are keeping prices in a slim range, analysts say.
“U.S. oil inventories hit a record high, but OPEC and non-OPEC compliance cuts are at a record high as well,” said Phil Flynn, senior market analyst at Price Futures Group. “The conflicting factors are keeping oil in a tight, sideways trading range that seems like it has been going on forever.”
Since the start of the year, WTI prices have traded between $50 to $55 a barrel.
Still, Flynn said “the last time I saw a market go sideways for so long, it broke out like a coiled spring to the upside.”
ANZ Research pointed out that crude volatility has been at its lowest level since 2014, according to the Chicago Board Options Exchange.
Market observers expect the lull to persist for more weeks with the next major price mover likely to be OPEC’s meeting at the end of May in which members will deliberate whether to extend the cuts beyond the initial six-month period.
“The OPEC decision could be the first disappointment even though at the moment members are showing a 90% compliance rate to the production cut deal,” said Vivek Dhar, a commodities strategist with Commonwealth Bank of Australia.
Oil prices were also pressured by the U.S. dollar rising on increasing odds of an interest rate rise by the Federal Reserve as early as later this month. Since oil business is conducted in dollars, a stronger greenback is typically a deterrent for buyers using other currencies.
Natural-gas futures, meanwhile, recouped earlier losses by the time prices settled.
Natural-gas consumption from the power sector “indicates the quick fall in prices has already encouraged coal-to-gas switching,” said Schneider Electric’s George, in his early note. “This tighter supply/demand balance could support prices over the next few weeks as winter comes to a close.”
Prices for the commodity have tallied a loss of more than 21% year to date. On Thursday, April natural gas tacked on half a cent, or less than 0.2%, to $2.804 per million British thermal units.
The EIA on Thursday reported that U.S. supplies of the fuel rose by 7 billion cubic feet last week. Analysts expected inventories to fall by just 2 billion cubic feet, on average, for the week, following milder winter weather that dulled demand for the fuel, according to S&P Global Platts.
But weakness from weather-related demand can be at least partly offset by a coming rise in demand from the industrial sector, said Richard Hastings, macro-strategist at Seaport Global Securities.