Oil Derailed by Stronger Inventories

Brent crude oil fell by almost $2 on Wednesday after a new build in U.S. crude stock levels put a global glut back in focus, cutting short a four session rally that pushed prices up to a high of $59 on Tuesday.

The recent rebound had increased speculation that prices may have hit a bottom, after a seven-month rout slashed oil futures by nearly 60 percent and prompted major energy firms to cut spending on new production.

But a report from the industry group American Petroleum Institute showing U.S. crude stocks rose more than 6 million barrels last week pushed prices down on Wednesday.

Brent LCOc1 was $1.90 lower at $56.01 a barrel by 1440 GMT (09:40 a.m. EST), after reaching an intraday high of $59 on Tuesday and off a near six-year low of $45.19 reached in mid-January. U.S. crude CLc1 futures were down $2.50 at $50.55 a barrel.

“We believe that despite the strength of the recent rally, crude oil prices have not yet bottomed and we are not yet at the start of a sustained price recovery.” said analysts at Macquarie Capital in a note, citing a short term supply glut in the first half of the year.

The fall in prices “makes perfect sense after the marked increase since Friday. A degree of reversal should be expected given stock builds globally,” said Gareth Lewis-Davies, senior oil strategist at BNP Paribas

The U.S. government’s Energy Information Administration (EIA) is expected to release its data on stocks at 1530 GMT (10:30 a.m. EST) on Wednesday.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza