Crude Oil Pressured Early by Increase in API Cushing Inventories

Crude oil futures inched lower during the Asian session on Wednesday, driven by plentiful supplies and concerns over demand due to slowing economic growth. West Texas Intermediate (WTI) crude for September was down $0.06 or -0.14% at $42.86. Internationally favored Brent crude oil futures were trading at $44.95, down 6 cents from the previous close.
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On Tuesday, WTI crude hit its lowest price since April 18 when it traded down to $42.36. At nearly the same time, Brent reached its lowest since May at $44.14. Overall, crude oil futures are down over 15 percent since reaching its high for the year in June. The catalysts behind the selling pressure are a refined product glut and slowing economic growth.

The current price action suggests that WTI futures are headed towards the $40 to $39 area over the coming weeks as the weak fundamentals are not expected to subside. However, once the market moves closer to balancing supply and demand it is expected to move back towards the $50 a barrel area.

The market was also pressured by the weekly report from the American Petroleum Institute that showed an inventory build at the Cushing, Oklahoma hub.

According to the API, crude oil inventories declined 800,000 barrels for the week to July 22. Strategic inventories at Cushing, Oklahoma, however, were up by 1.4 million barrels. Last week, the API reported a 2.3 million barrel draw in crude oil inventories, a figure later confirmed by the Energy information Administration.

Gasoline stocks fell by 420,000 barrels and distillates stocks grew by 290,000 barrels for the week ending July 22. Analysts had expected gasoline inventories to have increased by 675,000 barrels in the reporting period and distillate fuel stockpiles to have gained 700,000 barrels.

Concerns over demand for refined products continued to linger, especially in the U.S. where over the last few weeks, despite the fact that driving season is in full bloom, demand for gasoline had not risen as much as expected.

Earlier this week, Bloomberg warned that the drop in demand for oil and products could still outpace the decline in production, weighing heavily on crude oil prices.

Late Tuesday, the World Bank issued its latest set of forecasts for crude oil prices but the new data is subject to interpretation. On the plus side, the World Bank has raised crude oil’s price forecast this year to $43 a barrel from $41 a barrel in its April assessment. However, prices are expected to end the year lower compared with current price levels.