Oil slumped to its lowest in almost five months and international benchmark Brent crude book below $60 a barrel today, June 12.
U.S. benchmark West Texas Intermediate fell 4% today to $51.14 a barrel, threatening the $50 a barrel psychological benchmark. Brent fell 3.89% to $59.87 a barrel.
The immediate cause was a climb in U.S. crude stockpiles to their highest level since June 2017. Oil analysts had expected a slight draw down in inventories.
Almost all of the increase in stockpiles was at the Cushing, Oklahoma hub. That is bad news for U.S. producers from oil shales since it certainly looks like supplies from those producers are backing up in the system and that exports aren’t keeping up with increases in demand. (It’a also likely that flooding in the Midwest has disrupted some of Midcontient refineries.)
But the underlying cause–what turns every bump up in inventories into a major move lower in oil prices–is a fear that global economic growth is slowing, which will lower demand for oil.
The decline pushes oil back near the 20% decline that signifies a bear market in the commodity. And some oil traders are worried that the drop to near $50 a barrel is a sign that this level won’t hold and that we’ll see a drop below $50 later this week.
I drop below $50 is likely to bring out the bottom fishers looking to buy into an oversold market. That especially likely since OPEC (The Organization of Petroleum Exporting Countries) plus Russia look to be close to reaching an agreement to extend production cuts. Sat least that’s what source in the United Arab Emirates are saying today. That’s quite likely but shouldn’t be taken as a done deal since the group is having trouble agreeing to a schedule for its next meeting. The difficulty in picking a date seems to be a result of continued conflict between Saudi Arabia and Iran. Relations between those two oil powers are so contentious that if Iran said today was Wednesday, the Saudis would likely say “Thursday.”