Oil prices continued to decline on Wednesday as investors digested a government report showing slowly growing demand and an increasing supply glut at the US oil storage hub at Cushing, Oklahoma. The Energy Information Association (EIA) released data showing a larger than expected drop in the US crude oil inventory, but a large build at Cushing, which analysts said was generally bearish.
Phil Flynn of Price Futures Group said the relatively small increase in demand for gasoline in particular helped pull the market down. "That's disappointing because you'd think at these sort of pump prices below $2, people would be going be crazy filling up their tanks," Flynn said. The global benchmark Brent was down $1.15 at $56.75 a barrel at 12:52 pm EST (1752 GMT) after dropping as low as $55.81, its weakest since May 2009. US crude was down $1.28 at $52.86, off its $52.51 intraday low.
Both Brent and US crude significantly pared losses on Wednesday morning ahead of the release of the EIA data, but proceeded to fall shortly after it was issued. The Brent price has been cut nearly in half over the course of several months and is set see its biggest decline since the beginning of the worldwide recession in 2008.
Global oversupply has contracted the market significantly since the US expanded output and the Organisation of the Petroleum Exporting Countries decided not to restrict production. Output from Opec nations fell by 270,000 barrels per day in November and December, according to a Reuters survey published Tuesday, but forecasts still point to a large excess supply next year. The Obama administration has faced significant pressure to lift a 40-year-old ban on exports of most domestic crude, and did take some steps toward that end on Tuesday. News of crude shipments on the Seaway Twin pipeline on Wednesday could add to the glut of supply in the Gulf Coast. The development is expected to be bearish for US crude futures.