Oil dropped the most in almost three weeks after a surprise increase in American stockpiles and moves by Saudi Arabia to cool a rally that’s drawn the ire of U.S. President Donald Trump.
According to Bloomberg News, futures fell 1.6 per cent in New York following a government report showing U.S. crude inventories climbed 1.25 million barrels last week as imports rose and exports fell. Analysts surveyed by Bloomberg had been expecting a median 5 million-barrel decrease as supplies typically decline this time of year amid strong demand from refiners.
At the same time, Saudi Arabian Oil Co. lowered August pricing for most crude grades in Asia and Europe and cut them all in the U.S. a day after Trump called on OPEC to “REDUCE PRICING NOW!” in a tweet Wednesday.
The kingdom was also said to have increased daily output by about half a million barrels in June.
The market was expecting “higher exports and lower imports, but we got the reverse,” Rob Thummel, managing director at Tortoise, which manages $16 billion in energy-related assets, told Bloomberg News.
Crude hit a three-year high of $75.27 on Tuesday as the outlook for less supply from Iran, Libya and Venezuela overshadows a pledge by OPEC and its allies to boost output by 1 million barrels a day. Inventories at the key U.S. storage hub in Cushing, Oklahoma, have declined for the seventh straight week.
West Texas Intermediate crude for August delivery fell $1.20 to settle at $72.94 a barrel on the New York Mercantile Exchange, the lowest close in a week. There was no settlement Wednesday due to the U.S. holiday.
Brent for September settlement slid 85 cents to end the session at $77.39 a barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a $6.76 premium to WTI for the same month.
In the U.S., crude imports rose to the highest level since February 2017, with crude coming from Canada at the highest on record. Meanwhile, crude exports fell by the most since mid-May. The EIA also reported refinery utilization ticked lower for the first time since early May. Gasoline supplies declined, while distillate stockpiles rose.
In addition to cutting prices, Saudi Arabia told OPEC it pumped about 10.5 million barrels of crude a day last month as the kingdom sought to cap rallying prices by ramping up output, according to people familiar with the matter. The June figure would represent an increase of about 500,000 barrels a day from May.
As OPEC and its allies implement their new agreement, the market will have to see how much oil Saudi Arabia will send onto the marketplace, said James Williams, president of London, Arkansas-based energy researcher WTRG Economics. “But, there is clearly going to be a supply excess by mid-to-late September.”