Oil dropped more than $2 a barrel after data showed an unexpected rise in US gasoline stockpiles for the first time since February and US crude production hit its highest level since mid-2015.
US marker West Texas Intermediate dropped more than 4 per cent to a low of $50.09 a barrel, before recovering slightly to settle at $50.44. The global Brent benchmark also fell by more than 4 per cent to $52.58 a barrel, but then rebounded to $52.93.
The US energy department’s statistics, published on Wednesday, set in motion a price fall in mid-morning trading in New York. Both benchmarks — which were set for the biggest daily percentage falls since early March — fell to the lowest in two weeks.
Gasoline inventories rose by 1.5m barrels in the week ending April 14 compared with expectations of a drop of 1.9m barrels, the Energy Information Administration said. The data followed figures from the American Petroleum Institute, an industry group, which showed gasoline supplies rose by 1.4m barrels.
Analysts raised concerns about whether there would be continued robust demand for crude from US refiners, to make oil products such as gasoline, which weighed on prices.
Olivier Jakob at consultancy Petromatrix said: “Refinery runs are quite strong but to sustain this you need to see very strong product and gasoline demand and there is a question here.”
He added: “If demand cannot follow through then can refinery runs can be maintained and the same amount of crude be processed? This is what we are seeing play out right now and it is putting pressure on prices.”
But Paul Horsnell at Standard Chartered said higher gasoline inventories were due to higher than expected imports, meaning US consumers could not absorb the extra 355,000 b/d of imported fuel.
While US crude stocks posted their first back-to-back declines for the year, down by about 1m barrels to 532.3m last week, the report showed domestic production rose to the highest since August 2015. US crude output was up by17,000 barrels to 9.25m barrels a day, according to the weekly data.
Oil market watchers have been waiting for a drop in stubbornly high US stockpiles after some of the world’s biggest producer nations agreed to curb supplies to ease excess global inventories.
But the deal between Opec and producers outside of the cartel such as Russia, to cut around 1.8m b/d and bring to a close the worst price crash in a generation, has been met with a resurgent US shale industry.
A rebound in prices above $50 a barrel since the start of the year has only encouraged more drilling by US companies. This has led some observers to question the effectiveness of the pact.
Opec too is debating whether to extend the agreement for another six months as it seeks global inventories at their five year average levels.
Despite the price drop after the EIA data, analysts at Citigroup said they still believed the US oil market was “turning a corner”. They expect global and US inventories to draw down throughout 2017, even with a US supply rebound.
The latest sell-off in oil on Wednesday, however, saw investor appetite for energy stocks sour, with the S&P 500 energy sector falling 1.3 per cent — leading the decline on the benchmark index — taking the sector’s year-to-date drop to 10 per cent.
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