Oil prices slump as surprise increase in US crude stocks sparks demand fears
Oil prices fell yesterday as an unexpected increase in US crude inventories stoked concerns about fuel demand.
Brent, the benchmark for two thirds of the world’s oil, was trading 1.04 per cent lower at $85.35 a barrel at 11.09am UAE time.
West Texas Intermediate, the gauge that tracks US crude, was down 0.98 per cent at $80.82 a barrel.
US crude stocks, an indicator of fuel demand, rose by 9.3 million barrels in the week ended on March 22, according to an American Petroleum Institute report quoted by Bloomberg.
Following a two-million-barrel expansion in the week that ended on March 15, research company Macquarie was expecting American crude stockpiles to fall by 1.3 million barrels last week.
The API also reported a 2.4 million barrel rise in crude stocks at the Cushing, Oklahoma, storage centre, despite a reduction in petroleum stockpiles.
Cushing, a trading and storage centre, has a capacity of 90 million barrels and accounts for 13 per cent of total US oil in storage.
If US Energy Information Administration readings are confirmed, the levels of crude at Cushing would have recorded their largest weekly increase in barrel volume since January last year. Oil prices have risen by about 11 per cent since the beginning of this year because of Opec+ supply cuts and geopolitical uncertainty arising from the damage done by Ukrainian drone attacks on Russian oil infrastructure.
“We expect Brent to grind higher until $90 or until we reach June, supported by geopolitical tension which has shifted back to Russia-Ukraine, as well as a healthy debate on global balances,” said Vikas Dwivedi, Macquarie’s global energy strategist.
“If Brent reaches $90, we believe most of the upside will be factored into oil and the remaining unpriced fundamental factors, mostly supply growth related, will largely be bearish,” he said. Opec+ recently extended voluntary cuts of 2.2 million barrels a day into the second quarter in an effort to stabilise oil markets. The group will hold an online meeting on April 3 to review oil market conditions, but market analysts expect no action will be taken at that time. A full ministerial gathering will be held in Vienna in June.
Analysts said Opec+ may have to bring back some barrels to the market in the second half of the year to meet higher demand.
“It’s hard to find a scenario that they see no need for extra barrels because it’s so huge the amount of surplus or extra barrels that we see needed from Opec+,” Iman Nasseri, managing director for the Middle East at FGE, told The National.
“[At] the moment we see around a million bpd, maybe up to 1.5 million bpd of extra barrels coming from Opec+ in the second half of this year.”