Crude prices continue to lose ground this week and have fallen below $56 in the Wednesday session. The EIA weekly crude inventory report indicated another surplus, putting downward pressure on oil prices.
U.S. crude prices have declined for a third successive day, falling below the $56 on Thursday. In the North American session, WTI futures are trading at $55.79, down $0.94, or 1.67% on the day.
Crude prices continue to show strong swings. After gains of 6.7% last week, crude has retracted and declined by 4.5% this week. The symbolic $60 level was easily broken early last week, but is once again a ceiling, as crude is currently trading just below $56.
The markets become accustomed to mostly declines in crude inventories in the summer months. However, recent surpluses have surprised investors and put downward pressure on oil prices. On Wednesday, the Energy Information Administration (EIA) inventory report showed a large surplus of 2.4 million barrels, compared to the estimate of 0.3 million. This marked back-to-back surpluses and was the largest surplus in stockpiles since early August. Crude prices have fallen in response, as this week’s downward trend continues.
The third estimate for U.S. GDP in Q2 confirmed the second estimate, coming in at 2.0%. Although this reading was widely expected, it points to a slowdown in the U.S. economy. After a robust first quarter which showed growth of 3.1%, the Q2 are substantially lower. Weaker economic growth in the U.S. has raised concerns that the demand for oil could ease. Given that the global economic picture is not particularly bright, weaker demand for oil worldwide could push oil prices further down, perhaps to the $50-level. At the same time, a factor in favor of higher oil prices is geopolitical instability, in particular in the Persian Gulf. The recent attack on a Saudi oil refinery triggered double-digit gains for crude, and any further developments which threaten oil production could send crude prices higher.
Kenny is an experienced market analyst, with a focus on fundamental analysis. Kenny has over 15 years of experience across a broad range of markets and assets –forex, indices and commodities.
