NEW YORK: US crude oil fell below $40 a barrel for the first time since August as rising inventories in the world’s largest oil consumers heightened concerns over the deepening global glut.
The US Energy Information Administration reported inventories rose by 252,000 barrels last week to 487.3m barrels, edging them closer towards the record level of 490.9m hit in April.
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The increase came even as imports dropped and refineries increased runs, which would normally be expected to draw down stockpiles.
The fact that they rose indicates US output has remained robust, even as the price collapse has forced drillers to idle rigs.
“US stocks are supposed to be drawing at this time of the year,” analysts at Energy Aspects in London said.
The benchmark West Texas Intermediate contract for December delivery, which expires on Friday, fell 1.5 per cent to $39.91 a barrel. WTI last traded below $40 a barrel in August, when it hit a six-year low of $37.75.
The January contract was down about 1 per cent at $41.10 a barrel.
International benchmark North Sea Brent for January delivery was down 0.4 per cent at $43.34 a barrel, also close to its lowest level since August.
Crude markets are increasingly straining under the weight of global oversupply, which has mounted since last November when Opec, the producers’ cartel, decided to open the taps to try and squeeze higher-cost producers like US shale, ultra deepwater projects and Canadian oil sands.
In Europe, physical cargoes of crude are under pressure, with North Sea and Russian tankers trading at larger-than-normal discounts to benchmark contracts due to a mounting glut that is starting to strain storage capacity.
West African cargoes have also been struggling to find buyers, while in the key refining centre of the US Gulf Coast traders are pointing to plentiful stockpiles and only limited demand.
Refineries in the region often run down crude inventories before the end of the year for tax reasons.
Opec, whose members include the Gulf Arab states of Saudi Arabia and the United Arab Emirates, as well as Venezuela, Nigeria and others, the average price of its oil has also fallen sharply.
The Opec basket price, which takes the average of the countries’ various crudes, hit $38.29 a barrel on Tuesday — a level last seen in the financial crisis.
Saudi Arabia, the group’s de facto leader, has shown no willingness however to adjust its policy of keeping output high at the group’s December 4 meeting.
Saudi and the other Gulf members believe winning back customers will be more beneficial in the long run, even as some weaker members have complained their budgets have been decimated by a price crash that shows little sign of abating.
Olivier Jakob at consultancy Petromatrix in Zug, Switzerland, said “political stability” was at risk in the cartel, with the average oil price this year so far the lowest since 2005.
“Market share is nice but you don’t pay salaries with market share,” Mr Jakob said.
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