Crude Oil Plummets To End Below $47 As Supplies Surge

Oil 051612 22Jan15

U.S. crude oil plunged to end sharply lower on Thursday, after a weekly official oil report from the Energy Information Administration showed crude stockpiles in the U.S. to have surged much more than expected last week, to an 80-year high.

Crude oil prices rallied earlier in the day to touch $49 a barrel, ahead of remarks from European Central Bank President Mario Draghi, with expectation of an announcement of a massive stimulus program.

Earlier today, a report from the U.S. Energy Information Administration showed crude oil inventories in the U.S. to have surged 10.1 million barrels in the week ended January 16, while analysts anticipated an increase of 2.5 million barrels.

The EIA report showed U.S. crude oil inventories at 387.9 million barrels end last week, which is the highest in over 80 years for this time of the year. The massive inventories were attributed to lower refinery runs, with U.S. crude production stable at 9.2 million barrels a day.

Gasoline stocks increased by 0.6 million barrels last week, with analysts anticipating an increase of 1.1 million barrels. Inventories of distillate, including heating fuel, dropped 3.3 million barrels, while analysts expected an increase of 0.2 million barrels.

Industry group American Petroleum Institute, late Wednesday said U.S. crude stocks rose 5.7 million barrels last week.

Oil prices have continued to spiral downward after the Organization of the Petroleum Exporting Countries refrained from cutting down production to tame prices. World oil prices have been falling since June from a 2014 high of above $100 a barrel, with the OPEC squarely blaming the U.S. shale oil production for the supply glut and the spiraling prices.

Yesterday, Iran signaled it was going along with Saudi Arabia's plan to allow oil prices to remain low in an effort to stifle non-OPEC competition. Iran's oil minister said his nation would be fine even if crude oil dropped below $30.

Meanwhile, the ECB announced the launch of an "expanded asset purchase program" with combined monthly purchases of 60 billion euros or $70 billion, through at least the end of September 2016. ECB President Mario Draghi said the stimulus package will help push inflation back toward 2 percent in late 2015.

The ECB kept its main interest rate unchanged on Thursday, with the main refinancing rate at 0.05 percent, and the rate on its marginal lending facility at 0.30 percent.

The QE announcement pressured the euro and sent the dollar higher, weighing on dollar-denominated commodities.

Light Sweet Crude Oil futures for March delivery, the most actively traded contract, plunged $1.47 or 3.1 percent, to settle at $46.31 a barrel on the New York Mercantile Exchange Thursday.

Crude prices for March delivery scaled a high of $49.09 a barrel intraday and a low of $45.87.

On Wednesday, crude oil ended sharply higher at $47.78 a barrel, up $1.31 or 2.8 percent, ahead of the European Central Bank meet outcome on Thursday, with news reports of a definite proposal before the central bank.

With the quantitative easing announcement from the ECB, the euro came under pressure and sent the dollar soaring, hitting dollar-denominated commodities hard.

The dollar index, which tracks the U.S. unit against six major currencies, traded at 94.12 on Thursday, up sharply from its previous close of 92.71 late Wednesday in North American trade. The dollar scaled a high of 94.18 intraday and a low of 92.48.

The euro trended sharply lower against the dollar at $1.1379 on Thursday, as compared to its previous close of $1.1611 late Wednesday in North American trade. The euro scaled a high of $1.1647 intraday and a low of $1.1365.

On the economic front, a report from the Labor Department on Thursday showed a modest drop in first-time claims for U.S. unemployment benefits in the week ended January 17, with claims coming in above economists' estimates. Initial jobless claims dropped to 307,000, a decline of 10,000 from the previous week's revised level of 317,000. Economists had expected jobless claims to slide to 300,000 from the 316,000 originally reported for the previous week.

From Europe, the U.K. budget deficit increased in December from last year, the Office for National Statistics said Thursday. Public sector net borrowing excluding public sector banks totaled GBP 13.1 billion, an increase of GBP 2.9 billion or 27.8 percent from last year. The deficit was forecast to fall to GBP 9.7 billion.

The eurozone government debt to gross domestic product ratio declined in the third quarter, Eurostat reported Thursday. At the end of the third quarter of 2014, government debt to GDP came in at 92.1 percent versus 92.7 percent in the second quarter. In the same period of last year, the ratio was at 91.1 percent.

The Bank of Japan in an assessment indicated the Japanese economy to be recovering at a moderate pace, but inflation is likely to slow, the Monthly Report on Recent Economic and Financial Developments revealed Thursday. Japan's economy has continued to recover moderately as a trend as the effects of the decline in demand following the sales tax hike have been waning on the whole, the central bank said.

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