Oil dips amid economic concerns after US fuel stocks build
Traders also were forced to exit bearish calendar-spread options (CSOs) into the fourth quarter, market sources said, because of the signs that Cushing supplies are expected to remain tight.
Oil prices slipped on Thursday, paring earlier gains, weighed down by lingering worries about the global economy and bigger-than-expected builds in oil product inventories in the United States, the world’s biggest oil consumer.
Brent crude futures LCOc1 dropped 9 cents, or 0.2%, to $60.21 a barrel by 0440 GMT on Thursday.
West Texas Intermediate (WTI) crude CLc1 futures were down 2 cents at $55.66 per barrel.
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“Oil markets continue to move lower after the gloomy surprise build in US fuel inventories,” said Stephen Innes, managing partner at Valour Markets.
US gasoline and distillate stockpiles rose more than expected last week, while crude inventories fell as refineries hiked production, the Energy Information Administration said on Wednesday.
“Overall oil prices have come under pressure from worries about the China-US trade war, signs of slowing economic activity, evidence of slowing end-user oil demand, and reports of counter-seasonal OECD product inventories,” energy analytics firm Kayrros said in a note.
Oil traders raced to abandon complex, bearish options trades in US crude this week, after the market rapidly shifted to reflect tighter supplies at the key Oklahoma storage hub over the past month, leading to a surge of activity in a typically illiquid corner of the market.
Because of new pipelines flowing out of the Permian basin, the biggest US shale field, to the Gulf Coast, shipments to Cushing, Oklahoma, the delivery point for US crude futures, are expected to dry up. Inventories have already dropped for seven straight weeks at the vital storage hub - at a faster-than-expected rate, traders said.
Trading in US crude spreads, a proxy for expected inventories in Cushing, has been roiled, leaving traders scrambling to ensure they are not caught on the wrong side of the rally. That volatility extended to the calendar spread options market as well, which is normally quiet.
Traders also were forced to exit bearish calendar-spread options (CSOs) into the fourth quarter, market sources said, because of the signs that Cushing supplies are expected to remain tight.
US President Donald Trump on Wednesday said he was “the chosen one” to address trade imbalances with China, even as congressional researchers warned that his tariffs would reduce US economic output by 0.3% in 2020.
Oil traders, along with equity and bond markets, are awaiting a speech from Federal Reserve Chairman Jerome Powell on Friday at an economic conference in Jackson Hole, Wyoming, that could indicate whether the central bank will continue to cut interest rates and ease monetary policy.
Minutes of the Federal Reserve’s July meeting showed the bank’s board members were deeply divided over whether to cut interest rates as sharply as markets were wagering.
“With positioning in equities, bonds and energy all heavily weighted to this outcome, the resulting correction from a lack of Powell love, could be both ugly and emotional,” said Jeffrey Halley, analyst at OANDA.
Meanwhile, oil markets found some support from the simmering tensions between U.S. and Iran, after Iranian President Hassan Rouhani said if Iran’s oil exports are cut to zero, international waterways will not have the same security as before.
“We’ve got the concerns surrounding U.S. and Iran but there’s not really anything to push oil out of the current range. It just seems to be volatile within it,” said Jonathan Barratt, the chief investment officer at Probis Securities in Sydney.
