Oil Prices Decline on Bloated U.S. Crude Storage

On Wednesday, oil prices plunged as increasing crude stocks in the United States underscored a continuing global fuel supply overhang in spite of an OPEC-led effort to reduce production.

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On Wednesday, oil prices plunged as increasing crude stocks in the United States underscored a continuing global fuel supply overhang in spite of an OPEC-led effort to reduce production.

Prices for front-month Brent crude futures, the international benchmark for oil, were at $50.79 per barrel at 0451 GMT, dropped 17 cents, or 0.3%, from their last close.

U.S. West Texas Intermediate (WTI) crude futures declined 18 cents, or 0.4%, at $48.08 a barrel, 01:31AM ET.

“Crude oil prices fell as concerns over rising U.S. inventories resurfaced,” ANZ bank said on Wednesday.

The inventories of U.S. crude oil increased by 4.5 million barrels in the week to March 17 to 533.6 million barrels, the American Petroleum Institute (API) said late on Tuesday.

“The American Petroleum Institutes’ crude inventories stuck the knife into crude overnight, coming in at a 4.5 million barrel increase against an expected increase of 2.8 million barrels,” said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

“The American Petroleum Institutes’ crude inventories stuck the knife into crude overnight, coming in at a 4.5 million barrel increase against an expected increase of 2.8 million barrels,” said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

“If the API stuck the knife in, tonight’s EIA Crude Inventory figures may twist it. A blowout above the 2.1 million barrel increase expected, may well torpedo oil below the waterline,” he added.

Official U.S. Energy Information Administration (EIA) oil storage data is scheduled on Wednesday.

The bloated storage comes as U.S. oil output has increased more than 8% since mid-2016 to over  9.1 million barrels per day (bpd), levels comparable to late 2014, when the oil market  started to fall.

Increasing output  in the United States and somewhere else, and bloated inventories, are undermining efforts led by the Organization of the Petroleum Exporting Countries (OPEC) to reduce output and prop up prices.

“OPEC’s market intervention has not yet resulted in significant visible inventory draw-downs, and the financial markets have lost patience,” U.S. bank Jefferies said on Wednesday in a note to clients, even though it added that the reductions would possibly start to show by the second half of the year, if the Organization of the Petroleum Exporting Countries (OPEC) extends its output cuts beyond June.

In spite of reductions, analysts warned of renewed or ongoing glut in coming years, especially as U.S. shale producers ramp up and once the Organization of the Petroleum Exporting Countries (OPEC) returns to full capacity.

U.S. bank Goldman Sachs (NYSE:GS) advised its clients in a note this week that a U.S. shale led production surge “could create a material oversupply in 2018-19.”

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