25 December 2014, Lagos – Crude oil prices yesterday dropped by $2 per barrel in New York trade after a data by the United States Energy Information
Administration (EIA) showed that the country has built up a surprisingly large stock of crude oil inventories.
Though investors had predicted a drop in the United States’ inventories by 2.3 million barrels last week, the inventories rather rose by 7.3 million barrels, against analysts’ expectations, according to EIA.
The rise of crude inventories in the US by 7.3 million barrels was their highest December level on record.
Consequently, Reuters reported that the Benchmark Brent crude oil front-month contract was down $2.10 at $59.59 a barrel after a session low at $59.37.
Also, front-month US crude slipped $1.85 to $55.27, after a session bottom at $55.07.
These developments have added to worries about a supply glut that has battered prices for six months.
“It’s a Christmas flood of oil at a time when refiners and producers usually are letting inventories get lower for end-of-year tax reasons, but with this flood of supply there’s no place to put it,” Phil Flynn, analyst at Price Futures Group in Chicago said.
Describing the data as “very bearish” and playing into “the mantra of supply glut,” Flynn said it would be interesting to see if US crude would test a $53 low before the year ends.
The increasingly competitive global oil market has seen daily US output rise by more than 40 percent since 2006, but at a production cost which can be three or four times that of extracting Middle Eastern oil.
Crude oil prices had dropped to five-year low after the Organisation of Petroleum Exporting Countries (OPEC) decided to maintain its oil output ceiling at 30 million barrels per day, preferring to wait for the market to stabilise itself instead of cutting production quotas.
Despite the falling prices, the Saudi Arabia has also maintained that the cartel will not cut production even if the price of oil drops to $20 a barrel.
“Whether it goes down to $20 a barrel, $40, $50, $60, it is irrelevant,” Saudi Arabian Oil Minister, Ali al-Naimi, said in an interview with the Middle East Economic Survey (MEES), an industry weekly.
Naimi defended a decision by OPEC, whose lead producer is Saudi Arabia, last month to maintain a production ceiling of 30 million barrels per day.
OPEC’s decision sent global crude prices tumbling, worsening a price drop that has seen them fall by around 50 per cent since June.
Slower demand growth and a stronger dollar have also contributed to the slump.
Saudi Arabia has traditionally acted to balance demand and supply in the global oil market because it is the only country with substantial spare production capacity, according to the International Monetary Fund (IMF).
The kingdom pumps about 9.6 million barrels per day but Naimi said it was “crooked logic” to expect his country to cut and then lose business to other major producers outside OPEC.
– This Day