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Look out below! Oil collapsing as WTI drops below $60 on surging inventories and continued trade tensions

May 23, 2019

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  • Oil continues its fall today with WTI crude trading below $60 for the first time since March
  • Brent crude is following WTI lower, trading below $70 

WTI Crude Price - 1 Year

WTI crude

Source: Bloomberg

 

  • There have been a number of things that have weighed on the price of oil this week
    • US inventories rose by 4.7 million barrels last week to the highest levels since mid-2017
    • The rise in inventories was quite a shock as the market expected a decline 
    • Stockpiles of gasoline and petroleum distillates also rose last week while they too were expected to fall
    • The US increased oil production by 100,000 barrels per day last month to 12.2 million bpd, near an all-time high
    • The rise in trade tensions, especially since Friday, is stoking fears of an extended trade fight, which in turn fuels fears of slower global economic growth, and with it lower oil consumption

US Total Crude Inventories (ex-SPR) - 1 Year

oil inventory

Source: Bloomberg

  • The tumble in oil price is all the more pronounced given the a number of recent developments that would normally support higher oi prices
    • A sustained effort recently of OPEC to support prices, OPEC has announced production cuts over recent months and at a recent meeting in Jeddah, Saudi Arabia, indicated the potential for extending them
    • Heightened Middle East tension over the last 2 weeks
    • A complete halt to Iranian oil exports due to US sanctions
    • A temporary halt of Russian oil exports to Europe given pipeline problems

 

  • Surely part of the lower price of oil is also the overall diminished risk appetite from investors seen over the past week
  • More and more the US-China trade fight appears it will drag on which will continue to weigh in the price of oil 

 

 

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