On Wednesday, oil prices declined to extend falls from the prior day, as a huge increase in U.S. fuel inventories and a decline in Chinese demand implied that global crude markets remain oversupplied in spite of The Organization of the Petroleum Exporting Countries led efforts to reduce production.
International Brent crude futures were trading at 54.70 per barrel at 0758 GMT, decline 35 cents, or 0.64%, from their previous close.
U.S. West Texas Intermediate (WTI) crude was at $51.68 a barrel, down 49 cents, or 0.94%, 03:07AM ET.
These drops came after over 1-percent declines the previous day.
The sharp drops came on the back of surprisingly big increases in U.S. fuel inventories, as reported by the American Petroleum Institute (API) on Tuesday.
“The API delivered a Goliath crude inventory number… The second highest on record. The reaction was predictable as the herd, already nervous from the previous day’s price action, turned en masse and ran off the cliff,” said Jeffrey Halley of futures brokerage OANDA in Singapore.
Crude inventories increase by 14.2 million barrels in the week to February 3 to 503.6 million barrels, compared with analysts’ forecast for a 2.5 million barrel increase.
Gasoline stocks increased by 2.9 million barrels, compared with outlooks for a 1.1-million barrel increase.
Goldman Sachs stated that the data pointed to “U.S. gasoline demand falling sharply by 460,000 barrels per day (bpd) year-on-year in January, with such declines only previously (seen) during recessions.”
In spite of this, the U.S. bank said “this data vastly overstates a likely modest year-on-year decline in gasoline demand,” and that its “outlook for global strong demand growth (remains) unchanged”.
There were other indications of market weakness outside the United States.
China’s 2016 oil demand increase at the sluggish pace in at least three years, Reuters calculations based on official data presented.
China’s implied oil demand growth eased to 2.5% in 2016, declined from 3.1% in 2015 and 3.8% in 2014, led by a sharp decline in diesel consumption and as gasoline usage eased from double-digit progress.
The reducing happens as the economy expanded by only 6.7% in 2016, the slowest pace in 26 years.
Reducing demand and ongoing high inventories destabilize efforts by the Organization of the Petroleum Exporting Countries and other producers, including Russia to reduce production by nearly 1.8 million barrels per day (bpd) during the first half of this year in order to prop up prices and rebalance the market.
In spite of this, both Brent and West Texas Intermediate (WTI) are down over 6% since early January, when the reduction started to be implemented.
OPEC and non-OPEC countries have made a strong beginning to lowering their oil production under the first such deal in more than a decade as global producers look to lessen oversupply and support prices.
Somewhere else on Nymex, gasoline futures for March increased 0.7 cents, or 0.5%, to $1.482 a gallon, while March heating oil fell 0.4 cents ,or 0.3%, to $1.617 a gallon.
Delivery of Natural gas futures for March eased down 2.4 cents or 0.8%, to $3.106 per million British thermal units.
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