Oil prices skid as traders worry there’s a fuel glut

The gains come after a lackluster session on Thursday, when crude ended down 4.8% and Brent lost 4.9% to settle at two-month lows after a smaller-than-expected weekly decline in USA oil inventories.

United States commercial crude stocks fell by 2.22-million barrels to 524.35-million barrels, according to the Energy Information Administration (EIA). S&P Global Platts had forecast a decline of 2.6 million barrels.

USA crude’s benchmark West Texas Intermediate (WTI) futures fell 5 percent on Tuesday, on worries that Britain’s exit from the European Union would slow the global economy. Brent crude, used to price worldwide oils, lost $2.40, or 4.9 percent, to $46.40 a barrel in London.

US crude inventories posted a smaller than anticipated decline last week after falling by just over 2 million barrels.

Though there have been many factors to explain the recent unwind – fears over the economic impact of the UK Brexit vote, rising USA rig counts and concerns over the outlook for Chinese demand, just to name three – another explanation can be found in the chart below, supplied by the Commonwealth Bank.

At the Multi Commodity Exchange, crude for delivery in July was trading higher by Rs 16 or 0.52 per cent at Rs 3,079 per barrel with a business turnover of 4,886 lots.

Bullion futures for August delivery slipped 0.3 percent to settle at US$1,358.40 an ounce at 1:42pm on the Comex in NY, after falling as much as 1.9 percent following the payrolls report.

Yet on Friday traders said the price fall had been an overreaction, as crude stocks had dropped for nearly two months straight and US production had fallen 12.3 per cent since 2015 peaks. Stocks started the day higher, but fell after energy prices dropped. Inventories have been at historically high levels lately as the supply of oil outstrips demand.

The DoE also reported a much smaller than expected decline in gasoline inventories during the peak summer holiday driving season. The number of active oil rigs in the US rose by 11 to 341 last week, Baker Hughes Inc. data show. Prices are down 7.1 percent this week, the biggest drop since February.

The market became dislocated earlier this year in the wake of China’s economic slowdown and Saudi Arabia’s vengeful oil price war wherein the Kingdom increased oil production by almost 2 mb/d with the Crown Prince calling for an additional 1 mb/d to come on line at the worst point of the commodity crash in February.

The contract for August delivery was trading at Rs 3126.00, up by 0.03% or Rs 1.00 from its previous closing of Rs 3125.00.

Japan’s Nikkei 225 closed 1.1 percent down at 15,106.98.

CURRENCIES: The euro was down 0.2 percent at $1.1077 while the dollar rose 0.1 percent to 101.05 yen.