Singapore: Oil extended losses on Wednesday, to stand down more than 3% this week, after a surge in US crude inventories fed negative sentiment following the downgrade of credit ratings for Greece and Portugal.
Standard & Poor’s on Tuesday cut Greece’s credit rating to junk status after downgrading Portugal, prompting investors to pull cash out of energy markets in a flight from riskier assets.
“Market sentiment remains fragile and there is a possibility that if we have more adverse economic news we could see prices decline further,” said David Moore, an analyst at the Commonwealth Bank of Australia.
“US oil demand is weak. Over the course of this year we may see inventories decrease a bit, but overall they will probably remain relatively high.”
US crude for June delivery fell 18 cents to $82.24 by 0304 GMT, heading for a cumulative drop of near $2 in the last two trading sessions.
Oil pared losses as the dollar reduced gains on Wednesday, after trading as low as $81.66 a barrel earlier, down 78 cents from Tuesday.
Crude inventories in the United States rose 5.3 million barrels in the week ended 23 April, the American Petroleum Institute said on Tuesday.
The gain was more than five times bigger than forecast by a Reuters poll, aided by soaring stockpiles at the Cushing, Oklahoma delivery point, the pricing reference for US crude benchmark West Texas Intermediate (WTI) NYMEX futures contract.
Cushing stocks rose by 401,000 barrels last week to 34.6 million barrels, close to the record high 35.4 million barrels reported by the industry-funded API on 1 January.
The oil glut in the US Midwest is creating distortions in oil futures markets. The front-month WTI contract, which usually trades at a premium to European benchmark ICE Brent futures, was almost $3.50 lower, its biggest discount in eight months. June Brent was down 16 cents at $85.62.
Abundant supplies are also exacerbating incentives to stock more oil by depressing the value of prompt US crude relative to contracts for later delivery. This market structure, known as contango, is showing the deepest discount for the front month WTI contract to the second month since December at about $2.50.
The API also said US stocks of gasoline and distillates including heating oil and diesel fell last week, bucking expectations for gains.
Traders awaited government statistics on inventories from the Energy Information Administration on Wednesday at 8:00pm. Forecasts are for gains across all three categories.
US retail gasoline demand dropped 2.7% in the week to 23 April from the previous week, according to a MasterCard SpendingPulse report on Tuesday. Year-on-year, US gasoline demand fell 1.9%, the report said.
A rise in US consumer confidence to an 18-month high in April, according to a private industry group report also on Tuesday, failed to offset the negative effect of rising crude inventories and Greek debt.
But the International Energy Agency forecasts global oil demand will grow by 1.7 million barrels a day this year, rebounding from two consecutive years of decline.