Oil price extends drop on expected surge in US inventories

Crude oil futures have continued their march downward, with the US West Texas Intermediate (WTI) benchmark reaching a fresh six-year low. Crude prices have been weighed by concerns over rising supplies, with a report indicating that US oil stockpiles have surged for a tenth consecutive week to a new record high.

Brent for May delivery had shed 21 cents, or 0.29 percent, to $53.30 per barrel as of 08:47 GMT on the London-based ICE Futures Europe exchange. The benchmark lost 84 cents of its value during the previous session before the release of data from the American Petroleum Institute (API) trade body after the close of yesterday’s trading. The API report showed that US crude stockpiles surged by 10.5 million barrels in the week to March 13. Analysts surveyed by Platts had forecast a build of 3.7 million barrels last week.
According to analysts at Credit Suisse, sentiment in crude markets remains bearish, with the Brent benchmark likely to “move to new cycle lows and test long-term support at $39.35/$34.55. WTI targets $41.15/$39.65 next ahead of the 2008 low at $32.40.”
April WTI futures had tumbled over two percent, or 93 cents, to $42.53 a barrel in electronic trading on the NYMEX in New York as of 08:47 GMT, extending losses from the previous trading session. US crude has now plummeted to its lowest level since early 2009, erasing February’s gains as crude inventories continue to climb to record highs.
Data from API showed that US crude inventories in the week to 13 March rose to 450 million barrels, while crude stocks at the Cushing, Oklahoma, delivery hub climbed by three million barrels. The Wall Street Journal cited a note from Societe Generale as saying that capacity at the delivery point is “only 73% full, but in absolute terms, there is only 19 million barrels of space remaining”.

Reuters quoted Ben LeBrun, market analyst at Sydney’s OptionsXpress, as saying: “Whether the API data is right or wrong it is still about market expectations or missed expectations”. Investors will now await the weekly inventory report from the Energy Information Administration (EIA), scheduled for release at 14:30 GMT. According to LeBrun, that the market will now eye the EIA data for confirmation and should the reading come out better than expected “there’ll be a short-term bounce in oil prices,” LeBrun explained.
The Wall Street Journal quoted a note from Phillip Futures as saying that US crude has also been weighed down by the upcoming expiry of the April WTI contract at the end of the week. Market participants are also eyeing the monetary policy statement from Federal Open Market Committee due later today, as well as ongoing talks over Iran’s nuclear programme. Pledges by the Persian Gulf nation to boost oil output once Western sanctions are lifted have exacerbated worries over a worsening in the global supply glut, although Tehran’s claims that it will flood the market with oil have been downplayed by diplomats.
Based on the two front month contracts, Brent was trading at a premium of $10.77 to WTI as of 08:47 GMT. The premium reached a one-year high of $13 a barrel earlier this month.