Oil extends losses as the markets fall and US inventories climb
Brent and US crude drop by more than $1 a barrel as Hurricane Michael dodges US production sites
London — Oil prices slumped to two-week lows on Thursday as global stock markets fell, with investor sentiment made more bearish by an industry report showing US crude inventories rising more than expected.
Brent crude fell $1.74 a barrel to a low of $81.35, its lowest since September 27, before recovering a little to trade at about $81.70 by 8.50am GMT. Brent lost 2.2% on Wednesday. On October 3, it hit a four-year high of $86.74.
US light crude dropped $1.37 to $71.80 but then recovered to around $72.05. The contract lost 2.4% in the previous session.
“The up-trend is over for the moment, and a new direction is settling in,” said Robin Bieber, technical chart analyst at London brokerage PVM Oil. “The market looks like heading lower, with valid targets south.”
Share markets in Asia plunged to a 19-month low on Thursday after Wall Street’s worst losses in eight months led to broader risk aversion, a rise in market volatility gauges and concerns about overvalued stock markets in an environment of rapidly rising dollar yields.
“The clear risk-off mode that we are seeing across all markets is also hitting oil,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
US crude stockpiles rose more than expected last week, while petrol inventories increased and distillate stocks drew, the American Petroleum Institute (API) said on Wednesday. Crude inventories climbed by 9.7-million barrels in the week to October 5 to 410.7-million, compared with analyst expectations for an increase of 2.6-million barrels.
The US Energy Information Administration (EIA) is due to release official government inventory data Thursday at 2.30pm GMT.
In the US Gulf of Mexico, producers have cut daily oil production by roughly 42% due to Hurricane Michael, the Bureau of Safety and Environmental Enforcement said. The cuts represent 718,877 barrels per day (bpd) of oil production.
While production has been cut because of the hurricane, “down time is expected to be brief and Gulf of Mexico output now accounts for a comparatively small portion of total US production”, Jim Ritterbusch, president of Ritterbusch and Associates, said in a note to clients.
US oil output is expected to rise 1.39-million bpd to a record 10.74-million bpd, the EIA said in its monthly forecast on Wednesday. Goldman Sachs says US shale oil production can continue to increase by 1-million bpd every year until 2021, according to a new report by the investment bank.