Crude Prices Continue to Plunge - Now All Eyes on OPEC to the Rescue

Still others write off 2019 entirely and focus instead on the New Year: File Image/Pixabay

A surprise build in U.S. crude inventories played upon the already frayed nerves of traders on Wednesday and caused them to send oil prices tumbling nearly 5 percent to seven-months lows.

The losses began earlier in the session with the ongoing worries that the U.S./China trade war won't be resolved anytime soon, and they escalated when the the Energy Information Administration disclosed that a 2.4 million barrel build in U.S. crude stockpiles occurred last week instead of the 2.8 million barrel draw analysts had expected.

Plus, gasoline inventories rose 4.4 million barrels, and distillates rose 1.5 million.

As a result, Brent settled down $2.71, or 4.6 percent, at $56.23 per barrel, the lowest close since early January (the commodity has plunged nearly 14 percent since last week); West Texas Intermediate finished $2.54, or 4.7 percent, lower at $51.09.

Josh Graves, senior market strategist at RJO Futures, suggested there is no reason not to believe the downward trading trend will continue:  "Crude oil inventories were disappointing and the stock market is in worrisome territory."

Gene McGillian, vice president of market research at Tradition Energy, added, "The market isn't concerned about anything other than how demand is going to play out through the rest of the year."

It's unclear to what extent Saudi Arabia can remedy the situation, but on Wednesday an official for the kingdom who wished to remain anonymous told media that his country won't tolerate a continued slide in prices and is considering all options via telephoning other oil producers to discuss possible policy responses.

Helima Croft, chief commodities strategist at RBC Capital Markets, noted that the upcoming meeting in September of the Organization of the Petroleum Exporting Countries (OPEC) will therefore be critical: "I do not think that these guys are complacent; I can imagine that Secretary General Mohammed Barkindo is on the phone with [Saudi energy minister] Khalid Al-Falih and [Russia energy minister] Alexander Novak right now.

"I can imagine the dialogue is pretty ferocious."

The efficacy of OPEC aside, it seems all eyes are now focused somewhat desperately on a better 2020: Russell Hardy, chief executive officer at Vitol, told Bloomberg that his company has continuously revised oil product growth downward this year, but next year will likely see "subdued growth."

He added that with current low crude prices, investment has "probably been reduced, and supply will balance the market a little bit."