Oil Futures Poised for Sharpest Nosedive of 2019
23 May 2019 - 5:44PM
Dow Jones News
By David Hodari and Stephanie Yang
-- Oil futures dropped sharply on Thursday amid building U.S.
inventories and concerns about global trade.
-- West Texas Intermediate futures were down 5.2% at $58.22 a
barrel in midmorning trading in New York, on course for their
sharpest daily drop so far in 2019 and set to close at a
two-and-a-half-month low.
-- Brent crude, the global benchmark, fell 4.5% to $67.79 a
barrel.
Highlights
U.S. Inventories: Thursday's selloff marked a second negative
day for oil prices, with Energy Information Administration data
released Wednesday pointing to a U.S. supply glut. The report
showed U.S. oil inventories surged by 4.7 million barrels last week
to 477 million barrels, the highest total since July 2017.
"The main driver today is the inventory data out of the U.S. and
it's weak across the board, showing markets are not tightening,"
said Giovanni Staunovo, director of UBS Wealth Management's chief
investment office.
Gasoline stockpiles rose by 3.7 million barrels, and distillate
stockpiles climbed by 800,000 barrels.
The data also showed total products supplied over the last
four-week period fell 2.7% compared with last year, a negative sign
for fuel demand ahead of the holiday weekend.
"Heading into Memorial Day weekend and you have a gasoline
build, that's kind of a worst possible scenario here for the energy
patch," said Bob Yawger, director of the futures division at Mizuho
Securities USA.
Speculators: Selling gathered momentum Thursday, largely due to
speculators rushing to cancel bets on rising prices, traders said.
Crude supply has climbed amid an intensifying trade spat between
the U.S. and China. The dispute has raised anxieties about oil
demand as a bellwether for global economic growth.
Trade tensions have prompted selling across global equities
indexes, with a Chinese official saying the U.S. should "adjust its
wrong actions" if it wants to continue negotiations, according to
CNBC. The S&P 500 was last down 1.2%, and the Stoxx Europe 600
was last down 1.3%.
As of May 14, bullish bets on crude oil outnumbered bearish bets
by 258,988 contracts, according to data from the Commodity Futures
Trading Commission. Last month, net long positions held by
speculators reached the highest level since October.
"This is a very flows-driven market right now," said Scott
Shelton, a broker at ICAP PLC. "You just threw everything bullish
you basically could at the market, and nothing happened."
Insight
Geopolitical Risk: Weakening oil demand comes in the context of
a continuing production-cut pact between the Organization of the
Petroleum Exporting Countries and its allies, which has supported
prices over recent months.
Oil has been strengthened further in recent weeks amid friction
between the U.S. and Iran, which has since eased.
"Tensions between the U.S. and Iran kept the risk premium of
crude tighter, but they've slightly cooled in the last week," said
Geordie Wilkes, head of research at Sucden Financial Research. "But
it may not take long for them to re-escalate."
In addition to such geopolitical tensions, U.S. demand data will
also be closely watched by investors and analysts.
Ahead
-- Baker Hughes on Friday releases its weekly rig-count report
detailing U.S. drilling activity.
Write to David Hodari at David.Hodari@dowjones.com and Stephanie
Yang at stephanie.yang@wsj.com
(END) Dow Jones Newswires
May 23, 2019 12:29 ET (16:29 GMT)
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