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West Texas Intermediate crude oil, a US benchmark, entered a bear market on Wednesday, and it does not look ready to leave it any time soon.
"The combination of rising inventories in the United States, trade war concerns and economic fears outweigh the supply-side factors that prompted us to reach a high of $ 66 at the end of the year." the end of April, "said Matt Smith, director of merchandise research at ClipperData.
"The general economic sentiment has turned south in recent months and crude has been allowed to go down shares – further compounded by the buildup of US stocks," he said. declared.
Wednesday, WTI crude oil in July
CLN19, -3.33%
fell $ 1.80, or 3.4%, to settle at $ 51.68 a barrel on the New York Mercantile Exchange. On April 23, it stood at 22% under its highest peak of $ 66.30 US. Entry into a bear market is defined as a 20% or more drop in prices since the last peak reached. It would take a 20% increase over the current low bear market to reintroduce crude into a bull market.
Lily: Oil prices enter a bear market as weekly supplies of US crude reach their highest level in almost two years
According to the Dow Jones Market Data, the average bear market for crude oil lasts 60 trading days. The last bear market, which came out of oil on January 9, lasted 40 trading days.
Wednesday's sharp drop followed data from the Energy Information Administration, which showed a weekly rise in the US crude oil supply of 6.8 million barrels, the largest of the last five weeks. This brought domestic crude inventories, excluding those of the Strategic Oil Reserve, to 483.3 million barrels – the highest level since July 2017.
"The increase in inventories has been substantial and far exceeded expectations due to a sharp increase in imports and production reaching a new weekly record," said Marshall Steeves, Energy Markets Analyst at Informa Economics. This increase was "propelled mainly by increases in Permian shale but also by higher offshore production".
Inventories of refined products "also increased significantly and petrol demand is on average 1.3% lower than last year on an average four-week basis," he said. -he declares. Gasoline inventories in the United States rose 3.2 million barrels, while distillate stocks rose 4.6 million barrels last week, according to EIA.
Retail gasoline prices are higher than last year at the same time. "This has a marginal negative impact on demand as the summer season begins," said Steeves. AAA set the national average gasoline prices for ordinary unleaded at $ 2,795 on Wednesday, up from $ 2,940 the previous year.
Looking at the overall situation for oil, however, "prolonged trade tensions are holding back growth prospects for global demand, with negotiations between the two countries not appearing to be on the horizon and tariffs on Mexican imports are on the brink. to be introduced, "Steeves said. "This has been a factor for some time, but I think traders were expecting a faster resolution." Concerns about the slowdown in the global economy have fueled expectations regarding a lower energy demand.
The decline in WTI futures pushed prices below support levels in the short term, introducing "a technical weakness that could accelerate to $ 50, where sell-offs could be triggered," he said. Steeves warned.
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