Crude Oil Price Plunges 4% Following Massive Inventory Increase

Oil tumbled to its lowest in four weeks as an unexpected increase in US crude and gasoline stockpiles stoked fears that the global supply glut will remain unabated.

The West Texas Intermediate crude contract for July delivery dropped about 1 percent to a session low of $45.20 a barrel, below its close of $45.23 on November 29, the day before OPEC agreed to cut output to support the market.

Oil stockpiles in the United States surged by 3.3 million barrels in the week ended June 2, the EIA said Wednesday, confounding analysts' estimates for a 3.5 million-barrel decline.

Currently, oil prices gained support from growing tensions in the Middle East and signs of decline in United States inventory. Official data from the EIA will be released later today, and analysts are expecting stocks to fall.

The costs of producing shale and deep-water oil have fallen in recent years, enabling the US oil industry to be more competitive with the Organization of the Petroleum Exporting Countries (OPEC), according to the Institute for Energy Research (IER).

In December 2016, OPEC and non-OPEC producers reached their first deal since 2001 to curtail oil output jointly and ease a global glut after more than two years of low prices.

Greg McKenna, chief market strategist at futures brokerage AxiTrader, said there was "a real chance" OPEC solidarity surrounding its production cuts might fracture.

Libya and Nigeria's combined January-May average output of 2.312 MMb/d is now 101,000 b/d higher than their October levels, the benchmark month against which the rest of OPEC members' cuts are determined.

Brent for August settlement dropped 22 cents to $49.25 a barrel on the London-based ICE Futures Europe exchange.

Another OPEC-related factor that may be giving investors the jitters is news on Monday from Thomson Reuters Oil Research that the cartel's shipments likely jumped to 25.18 million barrels per day in May, up over 1 million bpd from April.

Oil traded little changed as diplomatic efforts to resolve a clash between Qatar and Saudi Arabia played out, with crude supplies seen as unaffected.Futures slipped as much as 1% in NY. Prices on Tuesday pared gains to close up 1.7 percent after the American Petroleum Institute was said to report stockpiles of the motor fuel increased by 4.08 million barrels last week. But it should be noted that while Qatar is the top exporter of liquefied natural gas in the world, it is the second-smallest oil producer among OPEC members. "Any further sharp reductions in USA stocks could put a floor under oil prices in the short-term", Razaqzada said.

  • Zachary Reyes