Crude Oil Continues to Slide Lower, Inventories Build Up in the US

Crude Oil daily chart

Crude Oil daily chart

With supply ample despite the OPEC-led cuts, much will depend on demand.

Oil prices were already under pressure from fears of slowing global growth due to US trade conflicts.

USA crude, gasoline and distillate stocks rose last week, the Energy Information Administration said on Wednesday.

Meanwhile, weekly USA oil production ticked up to an all-time high 12.4 million bpd, according to a preliminary reading from EIA.

President Donald Trump announced the US withdrawal from the nuclear deal with Iran in May 2018. Trump said he will start with a 5% tariff on Mexico and raise that to 25% unless the flow of undocumented migrants and drugs from across the border stop.

West Texas Intermediate (WTI) crude futures were at $51.84 per barrel was up 16 cents or 0.3 percent in their previous settlement.

The price of oil at the worldwide market is being pushed down by a slowdown in economic activities that is impacting fuel consumption.

A surge in imports and an increase in domestic production, he added, had boosted inventories, which "came despite strong demand for crude oil from refiners and gasoline from drivers".

The Energy Information Administration (EIA) said that the USA crude production increased to a record 124.4 million barrels per day in the week to May 31, a growth of 1.63 million barrel per day since May 2018.

By then, both contracts were in bear-market territory, having lost more than 20% from peaks reached in late April. The American Petroleum Institute's weekly report was said to show a 3.55 million barrel increase in USA stockpiles last week, compared with a 2 million decline predicted by analysts in a Bloomberg survey.

For the week ending May 31, the stockpiles registered 483.3 million barrels, about 6 percent above the five year average for this time of year. Producers in Mexico ship vehicle components, televisions, clothing, alcohol, agricultural products and fuel to the U.S.in daily trade amounting to $1.7 billion.

In the last month, Brent spot prices and calendar spreads have been sending seemingly contradictory signals about the outlook for the oil market in the second half of the year.

Saudi Arabia's Minister of Energy, Industry and Mineral Resources, Khalid A. Al-Falih, indicated that the oil cartel would continue to sustain market stability beyond June, pointing to continuous output reduction. "To me, that means drawing down inventories from their now elevated levels", al-Falih told Arab News.

Consumption concerns stem from a bigger fear about a sharp slowdown in the global economy that could ripple through the freight transportation and manufacturing sectors to hit oil demand.

Oil prices fell on Wednesday, with West Texas Intermediate crude futures (WTI) dropping to its lowest since January after USA crude inventories unexpectedly surged, adding to concerns about slowing global growth.

Crude futures clawed back some gains on Tuesday as the stock market bounced on hopes the Federal Reserve will cut interest rates.

The combination of slower supply growth from USA shale and continued restraint by Saudi Arabia and its allies should eliminate the prospective oversupply of oil later in 2019 and 2020.