Here's Why Oil Prices Dipped to almost $50 Today

Gladys Abbott
April 21, 2017

US crude futures CLc1 settled down $1.97 to $50.44 a barrel, a 3.8 percent drop, the biggest one-day decline since March 8.

China's March gasoline output rose 2.5 percent year on year to 11.24 million tonnes, the highest level since at least April 2014, data from China's National Bureau of Statistics showed on Wednesday, adding fuel into an Asian market that is already well supplied.

U.S. West Texas Intermediate (WTI) crude futures had risen 31 cents, or 0.61 percent, to $50.75 a barrel. The May contract expires at settlement, and the more actively traded June contract recently gained 10 cents, or 0.2%, to $50.95 a barrel.

OPEC members Saudi Arabia and Kuwait signaled that an effort by the Organization of the Petroleum Exporting Countries and other producers, including Russian Federation, to cut oil output was likely to be extended beyond June.

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Crude futures were trading more than 30 cents higher in Asia early Thursday, but the recovery, against a rout of almost $2/barrel at the previous day's close, was more likely bargain-hunting than the start of a full correction, as the weekly counter-seasonal build in USA gasoline inventories continued to weigh on market sentiment. Gasoline stocks posted a counter-seasonal build of 1.5 million barrels, despite heavier refining activity. "Compliance among Opec member countries has been very high to cut output to rebalance oil markets in the first three months of the deal", said Mohammad Barkindo.

Iran was allowed to increase its output under the deal as the nation rebuilds from worldwide sanctions that pressured its energy industry.

On Wednesday, crude prices tumbled more than 3.5 percent as US government data showed domestic crude stocks fell less than expected in the latest week and gasoline stocks posted a surprising 1.5-million-barrel build. The report showed that Saudi Arabia's crude exports declined from 7.7 million barrels per day in January to 6.96 barrels per day in February.

"Barring a spike in geopolitical tensions.oil prices will simply not be able to materially rally through resistance in the mid $50s (WTI) until the pace of of USA production moderates", said Tyler Richey, co-editor of the Sevens Report. Distillate stocks reached their lowest levels since November 2015, the EIA said.

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