US crude nears 2015 low on stockpile build, refinery woes

Oil traders are bracing for a rapid build-up in inventories in the coming weeks, likely testing Cushing’s storage capacity limits, as refiners shut for spring maintenance; the rise may be swifter than expected due to the unexpected prolonged closure of the biggest crude unit at BP’s Whiting refinery this week.

Oil prices looked set for their seventh weekly fall in Asia Friday, with US crude tumbling to fresh six-year lows as investors anxious a global supply glut is set to last. Meanwhile, West Texas Intermediate (WTI) crude for September delivery was down 17 cents to Dollars 42.06 after falling below USD 42 a barrel earlier in the session, the lowest since March 2009.

The report also said US domestic oil production fell 70,000 barrels a day to about 9.4 million barrels, which is positive for oil prices in an oversupplied market.

The market has become obsessed with breakeven rates for the very best parts of the Bakken, Eagle Ford and Permian Basin shale plays, as if those were all that mattered for the price of oil in the short and medium term. China added to the pressure on oil by devaluing its currency this week. A significantly weaker Chinese currency implies diminished demand for a range of commodities, including a particular focus upon oil.

To the surprise of many, U.S. oil output remains stubbornly high.

“We have not identified much change to fundamentals for oil at the moment”, he said in a market commentary.

Saudi Arabia and its close allies in the Organization of the Petroleum Exporting Countries are banking on this to rebalance the oil market and absorb an increase in Iran’s exports in 2016. That’s keeping a lid on demand growth for oil. “I don’t see any end of this until seasonal demand picks up”.

China’s economic slowdown and its impact on its trade-reliant Asian neighbours have also heightened the chance that any rebound in growth in July-September will be modest, analysts said. When supply outstrips demand, prices tend to fall.

While relief at the pump has been slow to create wider economic benefits- Americans are saving more than they once did, perhaps reflecting continued uncertainty about Washington’s other policies-sustained lower oil and gas prices eventually will boost the economy. Simply put, there’s more oil than the world knows what to do with.

The American energy revolution created a flood of new oil that has caused a supply glut. Going forward, we believe some of these companies should be able to compete in a lower-price environment and produce fairly good returns.