Singapore: US crude futures dropped half a percent to below $79 a barrel on Wednesday, extending the previous session’s losses away from a 1-year peak after a bigger-than-expected rise in US crude oil inventories.
“There is plenty of oil around at the moment and the current price is associated with tight supply so I am a little bearish and I suspect it will adjust lower,” said David Moore, commodities strategist at Commonwealth Bank in Sydney.
“However the market sentiment is still very positive and it’s hard to dispel that without a trigger. The API data showed a large stock build and if confirmed by the Energy Information Administration, that could be bearish in the very short term.”
NYMEX crude for the new front month December fell 42 cents to $78.70 a barrel by 8:09am, after the American Petroleum Institute said late on Tuesday that crude stocks rose 3.8 million barrels, far more than the 1.8 million barrel build forecast in a Reuters poll.
On Tuesday, the November contract hit $80.05, a 12-month high for the front month on a continuation basis. Brent crude lost 22 cents to $77.02.
The Energy Information Administration, a US government agency, will issue its own report later on Wednesday.
But pullbacks should be seen as buying opportunities as crude heads back to $100 a barrel, Richard Ross, global technical strategist at Auerbach Grayson in New York, said.
The persistent weakness in the US dollar, global strength in equities, absence of overhead resistance, powerful momentum and mounting evidence of real economic recovery pointed to a bullish outlook for crude, he said in a research note.
That view was echoed by BP’s chief economist, who also saw strong prices over the coming months, driven by expectations of growing demand and a relatively high level of Opec output discipline.
In the short term, sentiment was also knocked by a steadier tone to the dollar, which retreated from 14-month lows and weakness in US equity markets, both of which have been key drivers in lifting oil by 11% so far in October.
On the supply side, the dramatic slide in Mexico’s oil production since 2004 has come to an end and the country wi;; maintain output at 2.5 million barrels per day for the coming years, energy minister Georgina Kessel said on Tuesday.
“I am convinced this is a reasonable baseline and that we can work with it for the coming years,” Kessel told Reuters in an interview.
The rapid decline in Mexican production and a dearth of promising new fields to offset Cantarell had led to fears the number four supplier of crude to the United States will soon be an importer itself.