Oil drillers hammered as US crude supplies continue to climb

Oil prices dived Wednesday as a government report showed that U.S. crude stockpiles of last week increased unexpectedly. The figure was 2.62 million barrels higher than it was the previous week, and disappointing to economists who had been expecting a decline of 820,000 barrels. Stocks of oil and natural gas producers were the worst performers on the Standard & Poor’s 500.

WTI could slump to lows last seen during the global financial crisis, according to Citigroup analysts including Seth Kleinman. US crude supplies are nearly 100 million barrels above the five-year seasonal average, while some leading members of the Organization of Petroleum Exporting Countries are maintaining near-record production.

West Texas Intermediate oil for delivery in September 2016 touched $US47.90 a barrel on the New York Mercantile Exchange Wednesday, the lowest intraday price for a contract out 12 months since February 2005. It dropped as low as $40.46 during the session, its lowest since March 2009.

“Technically, we are still seeing a very bearish momentum, however for prices to break below $40 is going to be an arduous task”, he said.

Diesel HOc1 lost 3 percent, hitting six-year lows.

Signs that crude supplies could start to fall because of reduced US drilling, any ramping-up of geopolitical risks, and indications that China’s economic slowdown will be manageable, could turn the price tide, he said. Refinery utilization in the U.S. Midwest region fell to 92.2 percent, the biggest weekly drop in eight months.

“A drop in refinery utilization, combined with imports popping above 8 million barrels per day for the first time since April, flip-flopped the expectation of a 2 million barrel draw into the reality of a solid build”, said Matt Smith, director of commodity research at ClipperData.

Oil prices continued their steep descent on Thursday after a surprise increase in US oil inventories added to the bearish sentiment engulfing the market.

“This renewed decline in oil prices has largely been driven by a combination of concerns about demand, notably from China, and continued strong growth in supply”, said Pugh. The U.S. crude October contract hit an intraday low of $40.50 on Thursday.