Oil dips as U.S. crude stockpiles swell; possible OPEC cuts prevent bigger slide

Oil prices slipped on Thursday after U.S. crude inventories swelled to their highest level since December 2017 amid concerns of an emerging global glut, although the potential for a supply cut by OPEC prevented further drops.

A maze of crude oil pipe and equipment is seen with the American and Texas flags flying in the background during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. REUTERS/Richard Carson

U.S. West Texas Intermediate (WTI) crude futures, were at $54.47 per barrel at 0740 GMT, 16 cents, or 0.3 percent below their last settlement. Front-month Brent crude oil futures were at $63.34 per barrel, down 14 cents, or 0.2 percent. U.S. commercial crude oil inventories rose by 4.9 million barrels to 446.91 million barrels last week, the Energy Information Administration (EIA) said in a weekly report on Wednesday. That was the highest level since December last year.

U.S. crude oil production remained at a record 11.7 million barrels per day (bpd), the EIA said. “U.S. inventory data…continued to show significant supply builds, which comes on the back of sustained record U.S. crude oil production,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore. Weak Asian markets as investors fret about slowing global growth in the face of rising U.S. interest rates and trade tensions, also weighed on crude markets, traders said.

Despite this, some analysts have warned that oil markets have little spare capacity able to handle unforeseen supply disruptions. However, Innes said that once U.S. pipeline bottlenecks were alleviated, which he said he expected in 2019, “the entire notion of a tight global spare capacity argument goes down the well”. A lot of U.S. and also Canadian oil is struggling to get to market because production increases have outpaced pipeline expansions to handle shipping the additional crude. As a result, Canada’s federal government is considering a proposal from its main oil producing province of Alberta to share the cost of buying rail cars to move oil stuck in the region to refineries in the United States.

Meanwhile, the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC) is worried about the emergence of a supply glut that could further pull down prices. To counter that, the producer group is considering supply cuts when it next meets on Dec. 6, although some members, like Iran, are expected to resist any voluntary reductions. “While there is talk that OPEC plus Russia may again agree to a production cut, the concern is that not all relevant parties will be able to come to an agreement,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.

“Saudi Arabia has hinted at a unilateral cut, but it will want to be careful about annoying the U.S. given that President Trump has been vocal about his desire for lower oil prices,” he added. Trump on Wednesday praised Saudi Arabia over recent oil prices and called for prices to go even lower.“Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy!… Thank you to Saudi Arabia, but let’s go lower!” Trump tweeted.

Sources and photo-credits: Reuters