Oil Trades Near Four-Month Low Amid OPEC Cuts, Economy Concerns

Crude Oil

Crude Oil

According to the data released by the Energy Information Administration (EIA) on Wednesday, U.S. crude inventories rose by almost 6.8 million barrels in the week to May 31.

As the July contract expired and the six-month spread rolled forward to August-February, the backwardation shrank sharply from more than $4 per barrel to less than $2 and has come under further pressure.

The EIA report also showed gasoline stockpiles rose 3.2 million barrels during the week-ending May 31.

The Energy Information Administration (EIA) said that the US crude production increased to a record 124.4 million barrels per day in the week to May 31, a growth of 1.63 million barrel per day since May 2018.

West Texas Intermediate on Wednesday hit a low of $50.60 per barrel, its weakest showing since January 14, before settling at $51.68 - a 3.4 percent drop.

US gasoline inventories also rose by 3.2 million barrels during the week.

Distillate fuels also rose.

Meanwhile, weekly US oil production ticked up to an all-time high 12.4 million bpd, according to a preliminary reading from EIA. To make matters worse, API reported an unexpected build in crude inventories in the USA for the week ending May 31.

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Despite high price volatility, Goldman Sachs still expected the benchmark prices to likely remain at current levels, considering "an increasingly uncertain macro outlook as well as rising US production and large available core-OPEC spare capacity" that would help offset supply reduction of Iran and Venezuela.

Crude futures clawed back some gains on Tuesday as the stock market bounced on hopes the Federal Reserve will cut interest rates.

Oil had risen earlier in the day on optimism that the cartel and its partners would move to stabilise prices.

"So that's going to be the next level to watch".

Saudi Energy Minister Khalid al-Falih said on Monday that a consensus was emerging among producers to continue working "to sustain market stability" in the second-half of the year.

The number of rigs drilling for oil fell to just 800 at the end of May, down by nearly 10 percent from a current-cycle peak of 888 in November 2018, according to oilfield services company Baker Hughes.

However, Tuesday, the head of Russian state oil producer Rosneft, Igor Sechin, said Russia should pump as much crude as it wanted, and he would seek compensation from the government if cuts were extended.

"While much attention has been paid to a rising and record pace of USA crude production in contributing to the strong crude supply hike.it is becoming increasingly apparent to us that a softening in demand has also been a major contributor", Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

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