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Global Supply Glut Sends US Crude Plunging to Under $50

March 9, 2017 at 18:08 by Andrew Moran

Oil prices are slumping on Thursday as new inventory data suggest that the global supply glut is not diminishing. With a rise in US stockpiles, oil prices are extending their losses in 2017, suggesting that oil will not have a breakout year like it did in 2016.

April West Texas Intermediate (WTI) crude futures plummeted $1.33, or 2.65%, to $48.95 per barrel on Thursday at 16:39 GMT on the New York Mercantile Exchange. US crude is trading at its lowest level since November. This is the first time that US crude has dipped below the important $50 threshold this year, and experts warn that oil prices could slide to $42 in the coming months.

Brent, the international benchmark for oil prices, is also tumbling. May Brent crude futures $1.30, or 2.45%, to $51.81 a barrel on London’s ICE Futures exchange. Brent is trading at its lowest level since November.

Despite Organization of Petroleum Exporting Countries (OPEC) members reaching full compliance of its November 2016 agreement to slash output levels to 1.8 million barrels per day (bpd), US shale producers are offsetting the reductions, causing a massive supply glut in the international market.

The US Energy Information Administration (EIA) said in a report on Wednesday that US crude oil stockpiles soared 8.2 million barrels to 528.4 million barrels last week, an all-time high. This beats the forecasts of a tepid two-million-barrel increase. The EIA report also noted that this is the ninth straight weekly climb as well as the highest jump in weekly domestic production in more than a year.

Since the beginning of the year, US oil stockpiles have skyrocketed roughly 50 million barrels. This trend has many experts concerned about the efficacy of OPEC’s cuts.

It remains unclear if OPEC nations will maintain the agreement after May. Kuwait will host a meeting of OPEC and non-OPEC ministers on March 26 to discuss compliance with the output cuts. Analysts say that OPEC leaders will encourage other members to make deeper cuts to ensure oil prices permanently stay above $50. Whether they move ahead with larger reductions in the second half of 2017 remains to be seen, but US producers are taking advantage of the higher prices right now, which could apply a great deal of pressure on prices.

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