Oil settled near $40 a barrel on Wednesday, down slightly after the US stock market fell and a government report showed a larger-than-expected build in US crude inventories. US light crude for March delivery settled at $40.32, down 46 cents, after falling to a session low of $39.74. London Brent settled at $44.15, up 7 cents.
"The pullback seems to coincide with the stock market turning lower, but crude is still holding around $40, which in light of the bearish DOE (US Department of Energy) report is pretty impressive," said Stephen Schork, editor of the Schork Report in Philadelphia. US equities dropped on investor concern over a financial rescue plan, reversing gains from earlier in the day on a slowdown in the rate of job losses in the US services sector.
The US Energy Information Administration, the DOE's statistical arm, reported crude inventories rose 7.2 million barrels last week to an 18-month high of to 346.1 million barrels, extending a stretch of builds as demand wanes under the weight of an economic slowdown. Supplies of crude at the New York Mercantile Exchange's delivery point in Cushing, Oklahoma, jumped 800,000 barrels to another record high of 34.3 million barrels.
"This is a crude glut of epic proportions. With the big build in Cushing, the question is do they have any other place to put oil? We are absolutely swimming in crude," said Phil Flynn, an analyst at Alaron Trading in Chicago. The EIA data was similar to a report by the American Petroleum Institute (API) on Tuesday showing that US crude oil stocks jumped 8.1 million barrels last week. Oil traders and analysts generally consider the API report to be less credible than EIA data.
"In the past, people have discounted the API report. Maybe it shows people should be paying more attention to it," Flynn said. Oil's losses were limited by signals from the Organisation of the Petroleum Exporting Countries that it may cut oil production further in an attempt to bolster the market.
Opec, worried that the global economic downturn is reducing oil demand and pressuring prices, has promised to reduce oil production by a total of 4.2 million barrels per day (bpd) from levels seen in September. Opec's president said on Tuesday the 12-member group could remove more oil from the market if needed to boost prices.
"Opec has to cut some more and maybe we'll see a massive tightening in the second quarter when those (cuts) kick in and supplies in floating storage are flushed out," said Kyle Cooper, director of research at IAF Advisors in Houston. Oil has plummeted by more than $100 since hitting a record near $150 a barrel in July last year as the global downturn has weighed on demand for fuel.
Comments
Comments are closed.