Crude oil prices fall below $50 after US stockpiles surprise

By Oliver Haill

Date: Thursday 09 Mar 2017

Crude oil prices fall below $50 after US stockpiles surprise

(ShareCast News) - Oil prices in the US fell below $50 for the first time since December as aggressive selling continued on Thursday following data that showed crude stockpiles climbing for a ninth consecutive month to their highest since 1982.
Front-month prices for West Texas Intermediate fell back $49.45 per barrel just after 1030 GMT on Thursday, having fought back in earlier trade after a huge fall overnight.

Brent crude broke support around $53 and slipped down 1.6% to $52.25 a barrel at the same time.

On Wednesday the US Energy Information Administration had revealed local crude stockpiles climbed for a ninth consecutive month to a record high of 8.2m barrels, well ahead of the 1.7mmbbl forecast in the market, sending oil prices tumbling 5% overnight.

"Crude just got smashed as bearish momentum gathered pace following yesterday's US inventory build sparked a steep sell-off in oil prices," said analyst Neil Wilson at ETX Capital.

"Oil is now trading close to levels last seen since OPEC and Russia agreed to curb output at the end of November and it could have further to go."

Rising oil inventories suggest a "slippery path" for energy prices moving forward, said analyst Ipek Ozkardeskaya at London Capital Group, especially given the US aim of decreasing its energy dependency on the rest of the world under Donald Trump's rule, leading traders to wonder how effective OPEC production cuts could be.

From a technical perspective, Ozkardeskaya said WTI's next critical support was all the way down at $40.20, based on the Fibonacci 50% level.

The Canadian dollar was a big victim of the EIA print, being routed by its US counterpart to its lowest level since the start of the year, while other oil sensitive currencies weakened significantly, including the Norwegian krone, Aussie dollar and Russian Ruble.

Among London's major oil compaies, Royal Dutch Shell was down 3% and BP was 2% lower.

Wider implications

Some market watchers linked the oil spill to broader softness in financial markets.

Michael van Dulken at Accendo Markets said the new oil price retreat "piles pressure on the key commodity space which has already seen metals struggle under the weight of a strong USD before next week's likely Fed hike".

He added: "It also adds to divergent inflation data from China, hot on the heels of a surprise trade deficit, begging further questioning about the state of the world's number-two economy, and thus global growth."

Chris Beauchamp at IG said signs of a broad-based risk-off mentality were "cropping up like spring daffodils", with another major warning signal being the rout in junk bonds.

"The heavy selling in the high yield ETF over the past week sounds another alarm for equity bulls. To add to the signs of doom, mining shares in London are in full-blown retreat, as a stronger dollar and falling commodity prices take their toll," Beauchamp said.

Over to you, OPEC

OPEC has warned that its members' move to cut production could spur US shale producers and this has been shown with the ninth straight week of stockpile builds, while Baker Hughes data shows seven weeks of gains in the rig count.

Analysts said the rising US stockpiles made OPEC's output cut look shaky, with Saudi Arabia shipping more to the US and a rise in OPEC imports to the US that drove the EIA's stockpile build.

"The prospect of rising demand from a growing global economy ought to offset some of this but for now the mood is decidedly bearish as net long speculative positions are unwound," Wilson said.

"All eyes are on OPEC again ahead of its meeting in May - can it agree further curbs or will producers desperate for cash pump more to offset the falling revenues? Agreeing another cut could be a lot tougher if members think their efforts are merely supporting US shale producers. But if it doesn't get member on the same page, it could unleash further output that would add to the glut and make the rebalancing in the market even further away."


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