Singapore: Oil eased towards $63 a barrel on Thursday, after sliding almost 6% the day before on data showing a jump in US crude stocks, while the market kept an eye on measures by China to manage credit growth.
Adding to uncertainties in the oil market was news the US Commodities Futures Trading Commission (CFTC) was considering implementing position limits for some commodity futures in the face of the wide price swings that have raised worries over speculation.
Crude oil inventories in the world’s top consumer jumped by an unexpected 5.1 million barrels to 347.8 million barrels in the week to 24 July, data from the Energy Information Administration (EIA) showed, as imports hit a six-month high and refiners cut processing rates.
US crude inched down 11 cents to $63.24 a barrel by 8:54am, after plunging 5.77% on Wednesday, the biggest daily percentage drop since 20 April. London Brent gained 23 cents to $66.76 a barrel.
“The fall is largely driven by the increase in US crude inventories,” said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd, who sees the next support level in the $58-60 range.
Distillate stocks rose to the highest level in nearly 25 years, while gasoline stockpiles fell, the EIA said. Over the past four weeks, US fuel consumption dropped 4.1% against year-ago levels, led by a 10.7% drop in distillates demand.
Barclays Capital analyst Yu Yingxi said inventories at Cushing, Oklahoma, a large storage hub and delivery point for US crude futures, were close to operable capacity and if this continued, it would trigger the same price volatility seen earlier this year.
A glut at Cushing in March prompted US crude futures to trade at exceptional discounts to Europe’s Brent crude. West Texas Intermediate for September delivery was discounted by as much as $3.51 a barrel to Brent after the EIA data.
Yu also said any measures by China that could have an impact on industrial growth and fuel demand would be closely watched by oil markets.
“But the government will err on the side of caution. I don’t think the Chinese government will tighten up too much and risk disrupting the economy which is just starting to show signs of recovery,” she said. “But sentiment will be affected.”
Shares in China and Hong Kong suffered their deepest daily decline in eight months on Wednesday on fears that China may move to tighten money supply and banks could begin to restrict lending.
But China’s central bank said on Thursday it will keep a loose monetary policy to consolidate its economic recovery, easing market worries about its growth, helping the Shanghai Composite Index open slightly firmer.
The yen fell while the dollar held firm against the euro, after the Chinese central bank’s vice governor was reported as saying it will use market tools instead of quota-style controls to ensure credit growth is appropriate.
BarCap’s Yu said investors would also fret over any tightening moves by US regulators such as imposing position limits on commodity futures, which could force them away from trading West Texas Intermediate (WTI) crude towards Brent, which could also explain the widening spread between the two.