Oil futures fell on Wednesday, with U.S. prices settling below $50 a barrel for the first time since early April. The reason for this development is the freshly released weekly report by the U.S. government which showed that crude supplies unexpectedly rose.
Crude oil broke the support level at $50 after a surprise climb in US inventory levels. Crude oil prices slipped lower as a UN Security Council vote highlighted the prospect of Iranian oil returning to the global market. Iran’s new nuclear agreement with the US and other leading governments will ease sanctions, including restrictions on oil exports from the Islamic Republic of Iran. Downside risks to the forecast include higher-than-expected non-OPEC production supported by falling production costs and continuing gains in OPEC output. Possible upside pressures may come from closure of high-cost operations and geopolitical tensions.
On the New York Mercantile Exchange, West Texas Intermediate crude for September delivery settled at $49.19 a barrel, down $1.67, or 3.3%. Prices, which traded at $49.98 before the supply data, settled at their lowest level since April 2. September Brent crude on London’s ICE Futures exchange fell 91 cents, or 1.6%, to $56.13 a barrel.
Early Wednesday, the U.S. Energy Information Administration reported a climb of 2.5 million barrels in crude supplies for the week ended July 17. Analysts polled by Platts forecast a crude-stock fall of 1.9 million barrels, while the American Petroleum Institute Tuesday said supplies climbed by 2.3 million barrels, according to media sources.
With the dollar stronger and inventories at the delivery hub at Cushing, Okla. increasing, it is possible prices to fall to the mid to low 40’s in a month’s time frame.
Oil could EVEN plummet to $35 a barrel, the founder of Oil Price Information Services Tom Kloza told CNBC in November 2014. Indeed, if there is no major oil production cut, this scenario may unfold rather sooner than expected.
Early 2015 estimates from Bank of America Merrill Lynch put the floor somewhere below $35 a barrel — a drop that was attributed to the fact that market is oversupplied by about a million barrels of oil per day.
Meanwhile, data showed China’s oil demand isn’t showing signs of softening. China’s apparent petroleum product demand grew steadily in June, up 6.5% from a year earlier and 2% from May, according to Standard Chartered. Saudi Arabia’s exports of crude to China also grew 80% on-month in June to 1.3 million barrels a day, the highest since January 2013.