Feb 25, 2016
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Oil slips as oversupply, slowing growth outweigh U.S. output drop

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A pump jack is seen near sunflowers in Guthrie, Oklahoma in a September 15, 2015 file photo.  REUTERS/Nick Oxford/Files

 

By Henning Gloystein

SINGAPORE (Reuters) – Crude prices fell on Thursday as strong gasoline demand and lower U.S. crude output failed to counter downward pressure from global overproduction that has left storage facilities swelling with unsold oil.

The international Brent crude benchmark was trading at $34.18 per barrel at 0643 GMT, down 23 cents from its last close, hit by global oversupply that sees 1 million to 2 million barrels of crude produced every day above demand.

U.S. West Texas Intermediate (WTI) crude futures were down 23 cents to $31.92 per barrel.

“The basic overriding position in the oil market at the moment is that the global production exceeds global demand by quite a wide margin,” Said Ric Spooner, chief market analyst at CMC Markets.

In a sign of the excess supply, U.S. crude stockpiles rose 3.5 million barrels last week to reach an all-time peak above 507 million barrels, weighing on crude futures, data from the Department of Energy showed on Wednesday.

A slowing global economy may also increase the likelihood of low prices. Citi said global growth would be just 2.5 percent this year compared to a previous forecast of 2.7 percent.

“Global growth prospects are worsening further, with deterioration across advanced economies alongside previous weakness in emerging markets,” Citi economists wrote in a research note.

Despite the falls, there were some supportive indicators that briefly pushed oil prices on Thursday.

“It may be a little early to call it a trend but we are beginning to see some sign of cuts,” Spooner said, adding that U.S. output had fallen to about 9.1 million barrels per day, the same level as in October 2015.

“If we do start to see that (production) fall gradually from here that… might bring a bit of stability to the market,” he said.

Strong U.S. demand for gasoline supported crude on Wednesday, although analysts said this effect would ease.

U.S. gasoline demand stood at 9.06 million barrels per day (bpd) during the week ending Feb. 19 compared with 8.6 million bpd in the week ending Jan. 22, the Energy Department said.

“In 2015 we saw, 0.4 million barrels per day of demand growth from gasoline because the fall in oil prices is passed on to the consumer. This year, we’ve got growth normalizing to less than 0.1 million barrels per day,” said Virendra Chauhan, oil analyst at Energy Aspects in Singapore.

(Additional reporting by Manesha Pereira; Editing by Joseph Radford and Christian Schmollinger)

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