Oil prices are falling into deeper losses as U.S. government data confirmed a large addition to crude stockpiles on Wednesday.
Light, sweet crude for May delivery recently fell $1.02 cents, or 2.4%, to $40.44 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, traded down 96 cents, or 2.3%, to $40.83 a barrel on ICE Futures Europe.
Both benchmarks have been trading within a $41-$42-a-barrel range this week. Even Tuesday’s terror attack in Belgium—which could have been a reason to sell riskier markets like oil—failed to change that amid a rise in bullish sentiment that has pushed crude to rally for more than a month.
But that rally now faces a setback from industry data released late Tuesday showing crude stocks grew by around 8.8 million barrels. The U.S. Energy Information Administration data showed an increase of 9.36 million barrels.
The American Petroleum Institute said gasoline stockpiles fell by 4.3 million barrels, but that was not enough to cancel out the rise in crude, with total petroleum stockpiles up about 4.4 million barrels. Normally at this time of year the draw on gasoline will equal the addition to crude stockpiles, according to investment bank Tudor, Pickering, Holt & Co.
That aggregate number has taken on growing importance in recent weeks as traders around the world await the moment when high stockpiles start to decline. Stockpiles have hit historic highs and they need to start falling before prices can rise substantially, according to several analysts.
“Aggregate stocks trending ... worse than normal points to a market that is still somewhat oversupplied,” Tudor, Pickering’s analysts said in their morning note.
Gasoline has, however, helped limit the losses, analysts said. The above-normal gasoline draw reported by API has helped it outperform the rest of the energy markets, down just 0.8% to $1.4851 a gallon.
Stocks of distillates, which include heating oil and diesel, fell by just 391,000 barrels. Diesel futures fell 2% to $1.2272 a gallon.
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“Gasoline demand remains much stronger than anticipated,” said Jim Ritterbusch, president of energy-advisory firm Ritterbusch & Associates
He added that oil’s losses are also limited by continued “hype” about a production freeze still under discussion among some of the world’s biggest exporters. A preliminary deal between Russia, Saudi Arabia and several other members of the Organization of the Petroleum Exporting Countries, has helped send oil up by more than 50% since the 12-year lows of $26.21 a barrel it hit Feb. 11.
On Tuesday, Qatar said that OPEC’s planned meeting on April 17 should attract the world’s major producing nations. But two of the cartel’s members Iran and Libya—both with some of the biggest potential for ramping up production—appear not to be coming, making many skeptical this summit will yield a meaningful freeze.
Without Iran or Libya the meeting is “turning more and more into a farce,” Commerzbank said in a research note.
Several other factors have been offering support to oil this week. London-based Energy Aspects said unplanned production outages hit 2.7 million barrels a day in March which has lessened the impact of the estimated 300,000 b/d of extra crude now being pumped out by Iran.
Energy Aspects said that the outages, caused by both unplanned maintenance and terrorist attacks on pipelines, look set to continue. The Iraqi Kurdistan pipeline that pumps 600,000 b/d of crude through Turkey a day looks particularly vulnerable, they said.
