Oil prices continue to drop as US oil inventory surges
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Oil prices continue to drop as US oil inventory surges

Oil prices continue to drop as US oil inventory surges

Oil prices dropped to their lowest level in over six years last week

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Oil prices fell around 2 per cent in early Asian trade on Wednesday, as a stronger than expected build in U.S. crude oil stocks and weaker U.S. manufacturing data fuelled a rout in prices that started in the previous session.

Brent and U.S. crude finished around 8 per cent lower on Tuesday to end a 25-per cent three-session surge, the largest three-day gain since 1990.

That came after oil prices dropped to their lowest level in 6-1/2 years last week.

This rollercoaster volatility could continue especially if there are similar wild swings in the equity markets, said Ric Spooner, chief market analyst at Sydney’s CMC Markets.

“Any change in sentiment tends to be amplified. Any change in direction in the oil markets has the potential to be risk driven by what’s going on in the equity markets,” he said.

U.S. stocks fell nearly 3 per cent on Wall Street on Tuesday, with all three major U.S. equity indexes in negative territory for the year so far.

Brent crude for October delivery had dropped 85 cents to $48.70 a barrel, or 1.7 per cent, as of 0324 GMT, after falling $4.59, or 8.48 per cent, in the previous session.

U.S. crude for October delivery declined 98 cents, or 2.2 per cent, to $44.23 a barrel, after ending down $3.79, or 7.7 per cent, in the previous session.

Oil prices retreated after data from industry group the American Petroleum Institute on Tuesday showed U.S. crude stocks surged by 7.6 million barrels to 456.9 million in the week to Aug. 28. Analysts in a Reuters poll expected just a 32,000 barrel gain.

Official inventory data will be released by the U.S. Energy Information Administration later on Wednesday.

Weaker than expected U.S. manufacturing data from the Institute for Supply Management (ISM), which showed growth in August slowed to its lowest level since May 2013, also weighed on oil prices in the Asia timezone.

Upcoming U.S. data, including oil stocks, factory orders and employment figures, will be important in giving oil markets direction, Spooner said.

Prices are expected to hold at current levels until U.S. crude data is released, when they are expected to fall if oil inventories are higher, Singapore’s Phillip Futures said in a note on Wednesday.

“We expect prices to find support at $42.18 (for U.S. crude) and $46.84 (for Brent).”

CMC’s Spooner said prices were expected to end the week down, but should be above last week’s lows.

Crude prices have fallen too far, too fast and should recover gradually over the next year, with Brent averaging $62.30 a barrel in 2016 and U.S. crude $57 a barrel, a Reuters poll of analysts showed on Tuesday.


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