Crude oil prices have broken to the downside over the past few days, finally reflecting the ongoing imbalance between plentiful supply and limited demand.
West Texas Intermediate (WTI) crude dropped at one point to its lowest level since November 30, the day the Organization of the Petroleum Exporting Countries cartel agreed to cut output for the first time since 2008 after a meeting in Vienna. Brent crude fell to its weakest level since December 1and there are few signs so far that a recovery is likely in the week to come.
The drops came after data from the US Energy Information Administration showed US crude inventories surging to a record high, increasing concerns that a global oil glut could persist despite OPEC’s efforts to prop up prices with output curbs.
The EIA figures inevitably prompted worries about the balance between supply and demand as US shale extraction capacity grows. With a lower breakeven price than many other sources of oil, fears that US output will flood the markets sent them into a spin, along with energy stocks and the currencies of oil-producing countries like Norway, Russia and Canada.
These concerns are unlikely to go away anytime soon, suggesting that further price weakness is in store in the days ahead.
