Oil was unable to derive any support from a weaker dollar tone and persistent over-supply concerns pushed Brent to 3-month lows ahead of Wednesday’s data expected to show official US inventories at a record high.
Oil prices came under renewed selling pressure in US trading on Tuesday with a negative impact from weaker risk appetite and crude was unable to gain any support from a weaker dollar tone.
OPEC members have stated that an extension of output cuts beyond June is possible but, at this stage, any move has been linked to agreement with non-OPEC countries. There are major doubts whether non-OPEC countries would be willing to extend cuts which also undermined expectations of any deal and WTI dipped to lows near $48.00 p/b in New York with Brent testing support below $51.00.
The American Petroleum Institute (API) data recorded an inventory build of 4.5 million barrels for the latest week compared with expectations of a build close to 2.5 million barrels.
There was also a second successive sharp build in Cushing inventories, although there were more favourable developments surrounding fuel inventories with a further sharp decline in gasoline stocks with distillate also recording a draw on the week.
WTI oil prices attempted to rally on the fuel data with a brief move to the $48.40 p/b area, but selling quickly returned with a retreat to around $48.10.
Overall risk appetite remained weaker on Wednesday which undermined support for crude, especially with wider losses across the commodities complex.
WTI declined to test support close to $47.50 p/b while Brent tested fresh 3-month lows just above the $50.00 p/b level at the US open.
The latest Energy Information Administration (EIA) inventories data will be watched closely in US trading and any build above 0.6 million barrels on the week would push inventories to fresh record highs which would increase unease surrounding the overall stocks situation. A further significant increase in US production levels would also undermine confidence.
Any slide below $50.00 in Brent could trigger an aggressive round of sell stops, although there will also then be the potential for a sharp reversal from over-sold levels. An unexpected draw in EIA inventories would also be likely to trigger a spike on short covering.