Oil prices fell on Wednesday amid concerns about demand weakness in the US and Japan, but gold managed a modest rebound following recent losses.
Nymex May West Texas Intermediate lost $1.43 at $47.72 a barrel ahead of the latest US weekly inventories data which was expected to show a further increase of 1.9m barrels in crude stocks, according to a poll of analysts by Reuters.
US crude stocks have already reached their highest levels since since July 1993 and a further rise was anticipated in the latest data today with a rise in crude imports towards the 10m barrels a day level seen as likely.
“You still can’t swing a cat without hitting a barrel of crude oil in the United States,” said analysts at Schork Group.
Traders noted that the spread between the front month contract and the rest of the curve had widened sharply, suggesting further weakness in demand in the near-term and increasing the attractiveness of putting oil into storage. The June WTI contract traded $1.53 lower at $50.38 while the December 2009 WTI was $1.31 lower at $58.37.
“Elevated stockpiles in the US will continue to keep oil prices under pressure until demand improves,” said analysts at Hanson Westhouse: “We expect this (improvement) to occur with the start of a better US driving season this year and improved economic growth towards year end.”
ICE May Brent lost $1.05 at $50.17 a barrel.
Over the weekend, Saudi Arabia announced it would lower official selling prices for its crude grades for the first time in five months. Analysts at Commerzbank said this indicated the kingdom was “signalling a swift recovery in demand is unlikely”.
Some US refineries were still completing their spring maintenance programmes. The government data due for release on Wednesday was expected to show refinery utilisation remained low last week, up just 0.1 percentage points to 81.8 per cent.
Distillate stocks (including heating oil) were expected to fall 200,000 barrels while gasoline stocks were seen falling 1m barrels.
Nymex May heating oil traded 2.3 per cent lower at $1.3674 a gallon while Nymex May gasoline lost just under 4 cents at $1.4212 a gallon.
In Japan, the world’s third-largest energy consumer, crude inventories have also risen as the country’s worst recession since the second world war has hit demand.
Tom Pawlicki of MF Global Research said downward pressure on oil prices was also coming from concerns that demand forecasts from both the International Energy Agency, the energy watchdog of the the developed world and the US government, would be cut due to the deepening global economic recession.
Mr Pawlicki said the oil markets correlation with stock market performance was likely to remain high and that equities were due for a short-term correction ahead of US earnings season and after the ending of the G20 meeting.
“MF Global still believes that a long-term bottom has been made in oil, and looks to enter long positions in low $40’s” said Mr Pawlicki: “Our year-end (price) objective is unchanged at $75 a barrel.”
Gold traded at $888.30 a troy ounce, moving in a narrow range between a low of $879.70 and a high of $888.75, after ending trading in New York on Tuesday at $880.05.
