Oil Prices Slump on Surge in US Crude Inventories


Ejiofor Alike with agency reports

After recovering from a four-month low and turning positive on Tuesday, crude oil prices resumed their slide yesterday, with West Texas Intermediate crude futures (WTI) dropping more than four per cent after United States’ crude inventories unexpectedly surged.

The global benchmark, Brent crude was down $1.77, or 2.9 per cent at $60.20 per barrel, having briefly traded in positive territory early in the session.

A further drop in the price of Brent will hurt the implementation of Nigeria’s 2019 budget as the N8.8trillion budget was predicated on oil price of $60 per barrel.

The Economic Recovery Growth Plan (ERGP) had proposed $50 for the 2019 budget, but this was ignored as oil price hovered around $80 during the budget preparation before it slumped to the current level.

WTI was also down $2.17, or four per cent, at $51.31 a barrel.

United States crude, gasoline and distillate stocks rose last week, the Energy Information Administration (EIA) said yesterday.

Crude inventories rose 6.8 million barrels in the week to May 31, compared with analysts’ expectations for a decrease of 849,000 barrels.

Oil prices have fallen sharply on concerns about slowing demand, but won some respite on Tuesday after a global stock market rally on hopes the Fed may trim interest rates. Equities extended gains on Wednesday.

The oil market has been weighed down by concerns about slowing global growth due to the United States-China trade war and President Donald Trump’s threats last week to place tariffs on Mexican imports.

To prevent oversupply and prop up the market, the Organisation of the Petroleum Exporting Countries (OPEC), together with allies including Russia, has withheld some production since the start of the year.

The group will set its policy when it meets later this month or in early July.

To worsen concerns on oversupply, Russian oil giant Rosneft’s Chief Executive Officer, Igor Sechin, said on Tuesday that Russia should pump at will and that he would seek compensation from the government in the event that a global deal by OPEC and non-OPEC members led by Russia to cut supply to the global market, is extended.

Russia’s average oil output was 10.87 million barrels per day (bpd) on June 1-3, down from an average of 11.11 million bpd in May.

The decline follows the discovery in mid-April of contaminated Urals crude in the Druzhba pipeline to Europe.

Under the OPEC+ deal, OPEC, Russia and oil exporting allies have reduced output by 1.2 million barrels per day since January 1, as part of the efforts to reduce the excess inventories in the oil market and boost prices.

The deal covers January to June but producers are due to discuss extending the agreement or adjusting its terms at a meeting in Vienna, Austria, later this month.

Sechin, one of President Vladimir Putin’s closest allies, has reportedly questioned the logic of Russia cutting output further as part of an extended deal, saying the United States could raise production and take Russia’s market share.

“Does it make sense (for Russia) to reduce (oil output) if the United States immediately takes (our) market share?” Sechin was quoted as saying by Interfax news agency.

“We have to defend our market share,” he added.

Sechin has spoken out against the global oil deal in the past, telling Putin in a letter seen by Reuters in February it posed a strategic threat and played into the hands of the United States.

Sechin’s new comments came as Russia’s average oil output fell sharply on June 1-3 to 10.87 million barrels per day (bpd) amid an oil contamination crisis, down from an average 11.11 million bpd in May.

In another development, the efforts by OPEC and Russia to reduce global oil supply to the international market have received a boost as Venezuelan PDVSA’s oil exports took another hit in May, following a deadline for customers to wind-down purchases in order to comply with United States sanctions.

The energy firm’s exports of crude and refined products fell 17 per cent in May from the previous month to 874,500 barrels per day (bpd), mainly due to difficulty in selling off barrels of upgraded crude that used to be bought by United States refiners.

Venezuela has drained oil inventories since late January, when Washington imposed sanctions on PDVSA, to offset declining crude output.