Crude price plunges on global glut
OPEC continues to boost output as Iraq pumps at record pace
Oil felt the biggest drop since April as American supplies of crude rose and OPEC production increased, signalling a global glut will persist.
U.S. inventories climbed 2.39 million barrels, an Energy Information Administration report showed. Crude output from the Organization of Petroleum Exporting Countries (OPEC) accelerated last month to the highest level since August 2012 as Iraq pumped at a record pace, according to a Bloomberg survey.
Oil’s recovery from a six-year low has stuttered amid speculation the price rally is spurring production. Iraq is joining Saudi Arabia in boosting output as OPEC members defend market share against highercost producers. Investors have avoided assets perceived to be risky amid Greece’s debt crisis.
“There was a big build in crude, which was unexpected,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Mass. “The global glut is pushing oil into weak markets such as the U.S., where imports rose last week.”
West Texas Intermediate for August delivery dropped $2.51, or 4.2 per cent, to close at $56.96 a barrel on the New York Mercantile Exchange. It was the biggest decline since April 8 and the lowest set- tlement since April 22.
The oil price has been remarkably resilient given the levels of output, said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “We haven’t been seeing how much production there is and how it’s outpaced demand.”
U.S. crude inventories rose to 465.4 million barrels in the week ended June 26, EIA data show. Supplies were projected to decline by 2.5 million, according to a Bloomberg survey.
“The inventory report is our way of getting an idea of the state of supply and demand,” said Stewart Glickman, an oil and gas services equity analyst at S&P Capital IQ in New York. “Today’s shows that supply is far exceeding demand.”
OPEC pumped 32.1million barrels a day in June, an increase of 744,000 a day from May, according to the Bloomberg survey of companies, producers and analysts. Iraqi output surged by 567,000 barrels a day to a record 4.39 million.
“OPEC continues to raise production, especially Iraq and Saudi Arabia,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York.
“They’re taking their best shot at driving U.S. barrels off the market.”