Oil prices were under intensifying pressure on Thursday, with the US West Texas Intermediate benchmark dipping below $49 a barrel for the first time since late November.
Renewed concerns about a supply glut sent ripples through the currency market and hammered energy shares on Wednesday, and an attempt at a rebound on Thursday faded.
“The price fall we experienced yesterday probably shattered bulls’ confidence,” said Tamas Varga at London-based broker PVM.
WTI crude, the US marker, lost as much as 3 per cent to $48.79 a barrel, having fallen to a low of $50.05 on Wednesday, a decline of almost 6 per cent, although it closed above those lows.
In later trading on Thursday, WTI was at $49.04, down 2.5 per cent on the session.
The global Brent benchmark was down 2.3 per cent to $51.89 a barrel, its lowest level since early December, when Opec countries and producers outside the cartel including Russia agreed a pact to cut production.
Since, oil prices have moved in the tightest range for more than a decade. Brent has traded between $53 and $57 a barrel as both bullish and bearish factors weighed on the market: strong Opec compliance with the supply cut agreement has been met with a resurgence in US shale production.
“If things stay unchanged, then this week will be the worst week for oil prices since the Opec deal,” said Olivier Jakob of Petromatrix, a Swiss-based consultancy.
“If oil prices continue to slide, then the risk increases that the weaker Opec nations [Iraq, Venezuela, Angola] start to export more oil to reduce diminishing revenues.”
Wednesday’s decline came after the Energy Information Administration said inventories of US crude stocks had climbed by 8.2m barrels, far more than analysts expected, as refinery purchases declined.
Fund managers dumped energy stocks in response to the price decline with the S&P 500 energy sector falling 2.5 per cent, its steepest one-day drop since mid-September, taking its year-to-date losses to 8.5 per cent. Shares in European oil majors fell on Thursday with Royal Dutch Shell down 3.6 per cent and Total 2.3 per cent.
“The market has been facing two major headwinds — a continued supply overhang and an overhang of speculative length,” said Andy Lebow at Commodity Research Group. “Both factors came to the fore [on Wednesday].”
The US crude inventory report landed a day after Khalid al-Falih, Saudi Arabia’s oil minister, cautioned that an agreement struck by Opec and non-members such as Russia to curb output was helping revitalise the US shale market.
An extension of the deal would be contingent on how quickly oil inventories, which were not shrinking as quickly as anticipated, fell back to average levels, he added.
The crude oil dump took place as senior energy executives gathered in Houston for an annual industry conference, where the mood was more buoyant than a year ago when prices were at $30 a barrel.
Patrick Pouyanné, chief executive of Total, said the market contained bullish elements, such as Opec’s cutbacks, and bearish elements such as the fact that “the size of inventories continues to build up”.
In a press briefing on Tuesday evening, Mohammed Barkindo, Opec secretary-general, played down concerns about high inventories in the US. He said observers often focused on the US numbers because the data were available, and suggested that offshore stocks were starting to decline.
“If you look at the totality, the trend has started. We have seen big companies now destocking offshore,” he said. “We are closely watching this trend, and it will be magnified, I believe, in the months to come.”
Money managers and hedge funds have sharply raised bullish positions in crude oil futures, reflecting faith that Opec and co-operating countries will succeed in erasing a worldwide glut.
Nevertheless, the US offers the most transparent and current information of any oil market, giving its weekly inventory statistics an outsized impact on prices.
Even if stocks are declining elsewhere, they are not in the US. Oil production from US shale basins has also been on the rebound.
Commodity-related currencies remained under pressure. Canada’s dollar touched its lowest level of 2017 on Thursday at C$1.3509 against the US dollar, with Australia’s equivalent slipping by 0.3 per cent to a seven-week low of $0.7505. Norway’s krone has lost 0.15 per cent to its weakest level since January 11.
Additional reporting by Anjli Raval and Neil Hume in London