Crude Struggles Weekly Decline, Stockpiles on the Rise

Crude oil prices suffered a week-long decline due to persistent global oil glut.

After slightly climbing in Asian trade Friday morning, crude oil prices crashed once more as it extended sharp losses in the prior session. Investors reevaluated US data highlighting the petroleum oversupply, and Iraqi crude exports are progressively increasing.

Energy Aspects wrote in a note, “There is so much oil in storage that it will take months to truly feel the erosion of the overhang.”

Brent crude on the ICE Futures Exchange in London tumbled 0.3% to $46.07 a barrel, ending 2.1% lower in the preceding session. For this week, Brent had a decline of over 3%.

Meanwhile, US West Texas Intermediate (WTI) sank 0.6% to $44.50 a barrel, finishing lower 2.2% in the previous session. For this week, US oil prices fell 3.8%.

Earlier in the session, a weaker greenback lent support to prices which pushed crude into positive figures. The dollar index fell against its rival currencies on Friday, making dollar-branded commodities cheaper for other currency holders.

Incessant Crude Oversupply

While global oil glut has been decreasing, the massive amounts of crude in tanks and tankers on land and water made equilibrium come longer than expected, fueling fears. The Energy Information Administration (EIA) reported that crude stocks are at a peak of 519.5 million barrels at this period.

Ric Spooner, chief market analyst at Sydney’s CMC Markets said that the market is becoming a little stressed about the medium term. “The inroads into global stockpiles of oil are not as great as anticipated.”

Total US crude and oil product stocks climbed 2.62 million barrels to an all-time high of 2.08 billion barrels as gasoline stocks rose and presented a surprise inventory of 911,000 barrels amid July, the summer driving season.  The US Energy Department mentioned that the volume is “well above the upper limit of the average range.”

Crude in Asia

The gasoline exports in China, the world’s second largest oil consumer, reached a record peak of 1.1 million tons last month, more than double of 2015, as refiners are eager to send their barrels out to the export markets to decrease their overloaded supply.

The increase was reported by BMI Research on Friday, saying fundamentals in the Asian diesel market was still weak, as demand for fuel continues to diminish in major Asian markets. “Tight margins, ample supplies and brimming stockpiles at key diesel storage hubs suggest that a pullback in diesel output is imminent.”

Chinese gasoline production is predicted to beat demand by 9% this 2016, according to ICIS, an energy research firm. South Korean gasoline production climbed 11% in the first five months of the year, but consumption rose at 2.5%. At the same time, Japan’s gasoline production grew by 2.1&, while demand slimmed by 0.4%, based on BMI Research data.

Nonetheless, analysts claimed that oil glut may not linger for long. Peter Lee, BMI Research analyst, said “The weakening margins means refiners in China South Korea and Japan will have no choice but to pull back production in the third quarter or early fourth quarter.”

Lee forecasts the Asian gasoline market to overturn into deficit from 2018 on the back of strong demand from India and China. Vietnam, Indonesia, the Philippines, Pakistan and other smaller emerging economies will also help reduce the glut.

Crude in Middle East

Meanwhile in the Middle East, Iraqi exports are expected to increase this month, based on the loading data and an industry source, placing the inventory growth from OPEC’s second biggest manufacturer back on track after two months of falloffs.

According to loading data tracked by Reuters and an industry source, Southern Iraqi exports in the first three weeks of July have an average of 3.28 million barrels per day (bpd). That would be higher from the 3.18 bpd last month.

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