Americas News
Oil Drops 4% As U.S. Stock Build-up Spooks Demand-Wary Traders
With the demand destruction alarm being sounded by some analysts after reports of a rise in U.S. gasoline inventories, oil prices on Wednesday suffered their lowest settlements since June, a drop of about 4 percent.
After the Energy Information Agency disclosed that gasoline stocks rose by 5.4 million barrels last week to 223.6 million barrels, West Texas Intermediate settled down $2.94, or 4.1 percent, at $69.38 per barrel.
Brent settled down $2.90, or 3.8 percent, at $74.30 per barrel.
Overlooked by traders was another EIA disclosure: that crude inventories fell by a substantial 4.6 million barrels, and also product supplied of motor gasoline (considered a measure of demand) rose 3 percent last week to 8.46 million barrels per day (bpd), the first demand increase in four weeks.
But John Kilduff, founding partner at Again Capital, pointed out that the increase still lagged behind the 10-year seasonal average, and that "Demand during Thanksgiving week usually rivals summer driving demand."
Robert Yawger, analyst at Mizuho, added in a note, "Today's meltdown in the barrel is generally a function of demand destruction….there is not enough demand in the market to sop up the limited amount of product coming out the other end of the refinery, which will ultimately result in a lot of crude oil being sent to storage."
Fawad Razaqzada, a market analyst at City Index and Forex.com., delivered equally grim sentiments by stating, "The fact that more and more support levels are giving way, this is further fuelling the momentum selling.
"We will need to see a confirmed reversal signal before we even discuss the upside potential."
Capping Wednesday's trading blues were reports that U.S. manufacturing activity declined for a 13th straight month, which Alex Kimani, a researcher for Safehaven.com, predicted would further impact oil demand.
However, Kimani acknowledged that the overall downturn "has been very mild," plus "the much-larger services sector has actually seen activity accelerating in the third and fourth quarters after a brief slowdown in the first half of the year."
