Oil Drops as U.S. Stockpiles Swell to 22-Month High
22 May 2019 - 5:23PM
Dow Jones News
By Dan Molinski
-- Oil prices fell sharply Wednesday after a report showed U.S.
crude-oil inventories surged last week to their highest level since
July 2017 and domestic oil production rose toward another record
high.
-- West Texas Intermediate futures, the U.S. oil benchmark, were
2.1% lower at $61.81 a barrel on the New York Mercantile
Exchange.
-- Brent crude, the global oil benchmark, was 1.6% lower at
$71.05 a barrel on London's Intercontinental Exchange.
HIGHLIGHTS
Inventories: Prices extended earlier declines Wednesday after
the Energy Information Administration reported weekly inventories
that were virtually across-the-board bearish. The report showed
U.S. oil inventories unexpectedly surged by 4.7 million barrels
last week to 477 million barrels, the highest total since July
2017, while total inventories, which includes crude oil as well as
processed fuels such as gasoline, surged 17 million barrels to 1.29
billion barrels, the most since October 2017. What's more, U.S.
crude-oil production rose by 100,000 barrels a day to 12.2 million
barrels a day, just shy of an all-time record.
"Despite a chunky drop in imports, refinery runs below year-ago
levels have encouraged a second consecutive build to crude
inventories -- now up over 37 million barrels, or 8.5% -- in the
last nine weeks," said Matt Smith, director of commodity research
at ClipperData. "An increase to both gasoline and middle
distillates have rounded out a bearish-tilted report."
U.S.-China: Prices are also facing downward pressure from sticky
trade negotiations between the U.S. and China, the world's two
largest economies, as oil investors fear tit-for-tat tariffs and
the lack of any final agreement could start to crimp global demand
for oil.
"The other key bearish factor in the current market -- US-China
trade tensions -- has continued to escalate to start the week, with
the U.S. eyeing more restrictive measures related to US companies'
dealings with Chinese tech firms," said Robbie Fraser, senior
commodity analyst at Schneider Electric. "While the global nature
of the crude market insulates any acute impact from US-China trade
barriers, the threat of a broader slowdown in global economic
growth continues to raise fears that demand expectations could fall
short to close out the year."
INSIGHT
Geopolitics: Despite Wednesday's bearish turn in oil prices,
Schneider Electric's Mr. Fraser also noted that geopolitical risk
remains elevated, "and should challenge any major bearish turn for
prices." He specifically noted oil-export limitations in Venezuela,
Libya and Iran, which face varying degrees of conflict, political
upheaval and international sanctions.
AHEAD
-- The EIA will release its monthly report on oil production on
Friday, May 31.
Write to Dan Molinski at Dan.Molinski@wsj.com
(END) Dow Jones Newswires
May 22, 2019 12:08 ET (16:08 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.