Inventory levels in the U.S. remain elevated, suggesting glut unlikely to abate soon
LONDON—Oil prices slid on Tuesday pressured by continuing concerns about the global oversupply of crude.
Oil has been trading in a narrow band in recent weeks after falling to more than six-year-lows in the summer on worries about an economic slowdown in China, the world’s second largest consumer of crude. Dropping U.S. output has provided some support for crude, but inventory levels in the U.S. remain elevated, especially in petroleum products like gasoline. That suggests the glut is unlikely to abate soon.
Meanwhile, producer heavyweights like Saudi Arabia have continued to pump oil at a rapid pace in a bid to secure more market share.
“The oversupplied fundamentals have taken center stage during the last 3-4 months, with bears regaining control,” said David Hufton of brokerage PVM.
Brent crude, the global oil benchmark, fell 1.7% to $48.86 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 2.2% at $45.91 a barrel.
Later on Tuesday, the American Petroleum Institute, an industry group, will release its latest weekly data for the U.S. oil inventory levels. The report will be followed Wednesday by data from the U.S. Energy Information Administration. Both reports registered a fall in inventories last week.
“Consensus for tomorrow’s EIA inventory report is for a draw in crude, builds in distillates and gasoline inventories,” said Michael Poulsen, oil analyst at Global Risk Management. “Expect some volatility around both sets of data.”
Oil prices are trading at about half their levels 12 months ago. But as Brent continues to hover around the key $50 a barrel mark, some suggest that this level is unsustainable in the longer term.
“We think $50 is too low an oil price for medium or long-term equilibrium,” Paul Horsnell, head of oil research at Standard Chartered, said in a report.
At that price, oil supply stops increasing in non-OPEC regions, U.S. shale output falls and investment in conventional oil production is cut heavily, he added.
Nymex reformulated gasoline blendstock—the benchmark gasoline contract—fell 1% to $1.39 a gallon. ICE gas oil changed hands at $460.25 a metric ton, down $4 from the previous settlement.
