Global glut hits oil price again

Oil traded near the lowest level in more than six years yesterday as an unexpected rise in US crude stockpiles exacerbated a global glut.

Futures were little changed after dropping 4.3% the previous session.

Inventories expanded by 2.62m barrels last week, the most since April, US government data showed, and crude may fall to $32 (€28) a barrel as the surplus persists, Citigroup predicted.

Oil has traded in a bear market since July on signs the oversupply will be prolonged and as concern grows that emerging economies will weaken.

US crude supplies are almost 100m barrels above the five-year seasonal average, while some leading members of the Organization of Petroleum Exporting Countries are maintaining near-record production.

“There’s nothing good going on for the oil-market bulls,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said. 

“There will be short rallies as bargain hunters come in, but the market still has lower to go.”

The contract for West Texas Intermediate for September delivery, which expired yesterday, was unchanged at $40.80 a barrel at one stage on the New York Mercantile Exchange.

It earlier dropped to $40.21, the lowest level since March 2009. 

The more-active October contract dropped 17c to $41.10. 

The contract for Brent crude for October settlement declined 51c, or 1.1%, to $46.65 a barrel on the London-based ICE Futures Europe exchange. 

It reached $46.31, the lowest level since January 14. The European benchmark crude traded at a $5.55 premium to the October West Texas Intermediate contract.

Crude stockpiles at Cushing, Oklahoma, the delivery point for West Texas futures and the biggest US oil-storage hub, rose by 326,000 barrels to 57.4m through August 14, the Energy Information Administration reported on Wednesday.

A disruption at BP’s Whiting plant in Indiana meant about 1.5m barrels of oil did not get consumed last week. 

Inventories at Cushing may expand further as refiners perform seasonal maintenance.

West Texan Intermediate could slump to lows last seen during the global financial crisis, according to Citigroup analysts. 

The low reached in December 2008 of $32.40 a barrel “is a conceivable reality,” they had said in a report published Wednesday.


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