Oil Prices Stumble on Fears of Falling Demand
12 June 2019 - 3:53PM
Dow Jones News
By David Hodari
Oil prices dropped sharply Wednesday as investors signaled their
worries over sagging demand and a burgeoning U.S. supply glut.
Brent crude, the global benchmark, was down 1.9% at $60.10 a
barrel on London's ICE Futures exchange. On the New York Mercantile
Exchange, West Texas Intermediate futures fell 2.2% to $52.10 a
barrel.
The U.S. Energy Information Administration on Tuesday lowered
its forecast for global oil-demand growth in 2019 to 1.2 million
barrels a day, a 14% cut from the prior month's forecast, playing
into persistent worries about the health of global economic
growth.
Those concerns have been partly driven by the trade conflict
between the U.S. and China -- and fears about its impact on oil
demand -- and have stung commodities and equities markets in recent
months. Brent crude has sold off around 13% in the past month,
while WTI futures are down roughly 15%.
Weakening economic figures out of China have prompted its
government to issue waves of stimulus measures, with the latest
coming this week. Still, oil markets have shrugged off Beijing's
attempts to support the economy.
"I'm puzzled the stimulus measures didn't cause the usual
positive and it's that growth pessimism that continues to pressure
oil," said Norbert Rücker, head of commodities research at Julius
Baer.
Sagging demand has prompted unseasonable builds in inventories.
The American Petroleum Institute, an industry group, reported
Tuesday that U.S. crude supplies climbed by roughly 4.9 million
barrels for the week ended June 7, according to sources.
Wednesday's price drop was partly "a reaction to those pretty
bearish numbers from the API," said Warren Patterson, commodities
strategist at ING. "The market was expecting a million barrel
drawdown but instead got a more-than-four-million-barrel
build."
While steep declines have calmed in recent sessions, Wednesday's
drop brought oil prices back to the bottom of their recent price
range.
After Tuesday's API figures, the U.S. Energy Information
Administration's weekly inventory report, due Wednesday, will be
closely watched. Supply data have been bearish in recent weeks,
prompting swings in oil prices and confusion among traders.
"Knowing this market, I wouldn't be surprised to see the [Energy
Department] data come out bullish," said Edward Marshall,
commodities trader at Global Risk Management.
A larger-than-expected build in EIA inventories would likely
accelerate oil's selloff, though.
"It's just noise at the moment, but if Brent broke down toward
$57 a barrel, it would be significant," Mr. Marshall said.
Oil prices could receive a further jolt in the coming weeks,
with signals out of major producing nations increasingly divergent
ahead of a summit between the Organization of the Petroleum
Exporting Countries and its allies in Vienna due at the end of
June.
Comments from Saudi officials this week have suggested
participants were close to agreeing on an extension to the
continuing OPEC+ production cuts, but remarks from individuals in
the Russian oil market have contradicted that.
With question marks hanging over the date of the conference,
"when they do have the meeting, we could see some pretty tough
negotiations," said ING's Mr. Patterson.
"A scenario when they don't extend cuts is not going to be
pretty," he added.
--Ira Iosebashvili contributed to this article.
Write to David Hodari at David.Hodari@dowjones.com
(END) Dow Jones Newswires
June 12, 2019 10:38 ET (14:38 GMT)
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