Oil Price Falls on Surprise Climb in US Crude Supplies

US crude oil, also known as West Texas Intermediate or WTI, was down 45 cents at US$40.35 a barrel by 0910 GMT, after hitting a new 6-1/2-year low of US$40.23.

The September contract expires Thursday and the more actively traded October contract was down $1.27, or 3%, at $41.85 a barrel.

U.S. crude Inventories rose to 456.2 million in the week ended August. 14, the EIA report said. They have fallen by more than half over the a year ago.

But EIA notes its projection “remains subject to significant uncertainties: the pace and volume at which Iranian oil reenters the market, the strength of oil consumption growth and the responsiveness of non-OPEC production to low oil prices”.

Meanwhile, producers are not willing to cut down their output.

“As we go into the next couple of months, crude oil demand is going to decline, which worries the market”, said Andy Lipow, president of Lipow Oil Associates in Houston.

US banking giant Citigroup said WTI could fall to $32 a barrel, a level not seen since the throes of the financial crisis, pressured by excess supplies.

The shock bounce in inventories at a time once they usually fall added to considerations of a worldwide surplus, notably as indicators emerge that demand is faltering in prime power importer China. Energy companies have slashed jobs and curtailed drilling activity in response.

Chevron Corp. shares lost 3 percent and ConocoPhillips fell 3.7 percent, while Exxon Mobil Corp. declined 2.1 percent. The nation’s production climbed to a record 4.18 million barrels a day in July, according to the global Energy Agency.

When looking at the charts for crude, the commodity has been in a strong downtrend over the last couple of months and have been forming lower lows and lower highs which is indicative of the fact that bears are in total control at the current moment. Still, inventories usually aren’t this high in the summer.

Prior to 2015, the EIA had never reported inventory levels that had breached the 400 million level. He said oil production continues to drop and gasoline stocks fell more than expected, which shows demand is high.

Analysts announced that some traders had also be squaring short positions following recent drops in prices.

The Canadian dollar, which is closely tied to the price of oil, sold off on the news, trading down a third of a cent to close at 76.28 cents US.